Markit to Launch Electronic Confirmations for FX Options

Terry Flanagan

Markit, the data provider, is launching an electronic trade confirmation and exercise management service for foreign exchange options to reduce processing costs and operational risk.

The service will be deployed by MarkitSERV, which processes an average of more than 80,000 over-the-counter derivative trade events every day.

Keith Tippell, managing director and head of FX processing at Markit, told Markets Media: “Looking across the broad spectrum of foreign exchange products, FX options stand out as having a high degree of manual processing.”

Tippell said it was difficult to name a launch date for the new service as the firm is currently consulting with market participants on their requirements. Firms working with Markit include Barclays, Citi, HSBC, JP Morgan, Morgan Stanley, Nomura, RBS, UBS and large buyside institutions such Citadel’s global fixed income fund according to a statement.

Foreign exchange trading reached an all-time high of $5.3 trillion in April 2013, 35% higher than in 2010, according to the 2013 Triennial Survey by the Bank for International Settlements. However processing of over-the-counter options remains inefficient due to their complexity and lack of standardisation.

James Bindler, global head of G10 foreign exchange at Citi, said in a statement: “Manually exercising FX options is a vestige from an earlier era of FX options trading. Automation of this process will help to reduce both uncertainty and risk in a market where volumes have grown substantially over the past years.”

“FX options are one of the most complex foreign exchange products traded in the market and central confirmation infrastructure from Markit will help drive normalization of the representation of trade terms,” added Tippell.

The new service will include front and back office processes such as centralised generation of legal trade confirmations, straight-through-processing of exercise actions and realtime communication of exercise actions via an audited platform.

Central confirmation of trades will also make it more efficient for the FX market to comply with new regulations requirements such as requirements for clearing.

“There is also broad interest in making confirmations more centralised for cash FX products such as forwards and swaps. There are significant risk mitigation and cost savings for the industry,” added Tippell.

Markit also intends to expand the new service to provide legal confirmation for non deliverable forwards to complement its existing MarkitSERV clearing middleware service for NDFs.

Feature image via iStock

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