OTC Infrastructure Takes Shape

Terry Flanagan

As swaps reporting and clearing regulations take effect, an OTC infrastructure is being built to handle the complex interrelationships among swaps counterparties, dealers, FCMs, clearinghouses, exchanges, and repositories.

Traiana, a provider of post-trade and risk solutions, said that the first futures commission merchant (FCM) has completed production testing for Traiana’s central risk management infrastructure for swaps clearing.

With the completion of testing, this firm is ready to go live with clients trading interest rate derivatives and credit default swaps on swap execution facilities (SEFs) or designated contract markets (DCMs) with pre-trade order screening, as required under the new Dodd-Frank clearing regulations.

Five additional FCMs as well as further buy side firms, fund servicing firms, and order management service providers are currently in the process of joining the service and production testing.

“We are very pleased that the first FCM has completed production testing, as we all continue to prepare the industry for upcoming deadlines for mandatory clearing,” said Nick Solinger, chief marketing officer at Traiana.

Swap dealers, major swap participants and private funds active in the swaps market have all been required, from March 11, to begin clearing certain index credit default swaps and interest rate swaps.

All other financial entities will be required to clear swaps beginning on June 10, 2013, for swaps entered into on or after that date. Buy-side market participants transacting swaps must determine whether they are subject to the mandatory clearing requirement.

The process of reporting trades in credit and interest rate derivatives to an SDR is scheduled to begin on October 12 for registered entities, however there remains some time for registration for dealers and MSPs [major swap participants].

Reporting deadline under the Dodd-Frank Act and Emir will require companies to report their over-the-counter derivatives trades to trade repositories, triggering major upgrades to trading systems.

DTCC operates a multi-asset class swap data repository (SDR) in the U.S. The SDR, which is operated by DTCC Data Repository (U.S.), or DDR, went live on October 12, the first day of required swap data reporting.

Traiana has launched its Swap Data Repository Service (Harmony TR Connect) for over-the-counter (OTC) derivatives.
Harmony TR Connect provides all market participants with the ability to comply with the trade reporting requirements under the U.S Dodd-Frank framework and EU’s European Market Infrastructure Regulation (Emir), offering a single point of connection for post-trade reporting of foreign exchange, interest-rate and credit default swap trades.

By allowing the financial service industry to partner with regulators to more effectively monitor and mitigate potential systemic risk, the U.S.-based SDR is an important step in implementing the Dodd-Frank Act by achieving these goals and helping to bring greater transparency to the OTC derivatives market, according to the DTCC.

Swaps transactions need to be reported in near real-time, creating technical challenges for the reporting firms and for DDR.

The DTCC DDR trade repository has been set-up to publicly disseminate all OTC Derivatives trade activity that is required to be reported under the Dodd-Frank Act.

“Up to now much industry effort has been focused on the need to deliver intra-day trade feeds from Dealers platforms to a Swap Data Repository,” said Amir Khwaja, CEO of Clarus Financial Technology. “Very little thought has gone into what value can be extracted from the data held in these repositories.”

Clarus Financial Technology has launched SDR View, its Swaps Data Repository viewer application.

“We wanted to take the data files published by DTCC DDR and show the real value in this data,” said Khwaja. “For the first time, it is possible for all market participants (sell-side or buy-side) and for all market observers (regulators or researchers), to see the actual trading activity in the OTC Derivatives markets.”

The SDR View application provides metrics of trading activity for a day, a week or a month, such as the volumes traded in Interest Rates Derivatives in a given currency and product, the percentage of cleared trades versus bilateral trades and the actual traded prices and deal sizes.

“With the latest features, including intra-day updates and drill-down, we have a product offering that will gain further users,” Khwaja said. “We also hope that this will serve to inform and guide market participants and market observers in their day to day business.”

Related articles

  1. Daily Email Feature

    View From a Buy-Side Trading Head

    With Marija Janchovski, Head of Equities Trading – Asia Pacific, Vanguard Australia

  2. Outsourcing "is no longer a taboo word," Linedata EVP Anup Kumar says.

  3. Tradeweb-CodeStreet Deal Aims to Pool Liquidity

    With Lindsey Spink, Co-Head of Global Fixed Income Trading, American Century Investments

  4. White paper identifies initial steps financial organizations can take to protect themselves. 

  5. It’s time to assess technology users' needs holistically, rather than granularly at the application level.