OTC Landscape Taking Shape

Terry Flanagan

With the Dodd-Frank and Emir mandates underway, market participants are looking for cost-effective and capital-efficient means to clear OTC derivatives transactions.

Over 280 market participants have cleared over $5 trillion via CME Group’s interest rate swap clearing service since its inception in 2010. Open interest increased 58% in June from $1.9 trillion to over $3 trillion, with over 3,600 client accounts currently holding open positions. Average daily trade count for Cleared OTC IRS in June was 854 trades per day, the company said.

Market participants looking to clear foreign exchange trades under the new Dodd-Frank and Emir regulations can leverage their existing foreign exchange prime broker connectivity together with Harmony CCP Connect’s matching and affirmation capabilities to get direct access to CCPs.

Traiana, a provider of pre-trade risk and post-trade processing, announces that the first interdealer non deliverable forward (NDF) trade has been delivered to LCH.Clearnet’s ForexClear service through the recently established link with Traiana’s Harmony CCP Connect. The trade was a USD/KRW NDF with HSBC as one of the trading parties.

“We are very pleased to have participated in the execution of the first interbank trade to be cleared through the new link with LCH.Clearnet and Traiana,” said Jacqueline Liau, global head of product & service for FX Prime at HSBC. “This direct connectivity gives HSBC, and the industry, an efficient and flexible way to quickly adapt to changing regulations.”

Gavin Wells, CEO of LCH.Clearnet’s ForexClear said: “The swift take up of our link with Traiana is testament to the strong demand from the market for solutions to regulatory requirements.”

Traiana’s Harmony CCP Connect provides a comprehensive workflow via the Harmony network for both interdealer and client clearing, including CCP connectivity, trade routing, affirmation, matching, allocation, and reporting for OTC foreign exchange options and NDFs.

Separately, TeraExchange filed its application to become a Swap Execution Facility (SEF) with the Commodity Futures Trading Commission on July 26, 2013.

TeraExchange will empower market participants to trade across various financial instruments including Interest Rate Swaps, CDS Indices, CDS Options and Single Name, NDFs and other cleared OTC products.

“We are committed to being a leading SEF by delivering the most transparent and innovative marketplace available,” said TeraExchange CEO Christian Martin. “We are providing customers across the entire marketplace a robust solution that has been tailored to meet the new regulatory requirements as well as the myriad needs of traders. We are very pleased to be included among the first to file for designation as a Swap Execution Facility with the CFTC and we welcome their oversight in this dynamically changing landscape.”

CFTC rules that have emerged from Dodd-Frank are designed to insert transparency, safety and oversight into the OTC derivatives market. It is expected that by the fall of this year, all U.S. financial institutions will be required to be clearing their swap trades and thereafter transacting swap trades on a SEF to maintain compliance.

TeraExchange offers market participants an anonymous central-limit order book for execution of a wide range of derivative instruments. It will make available for trading all OTC derivative instruments that are listed for clearing by various clearing houses, regardless of underlying reference or tenor. Initially, those instruments will include Interest Rate Swaps, CDS Index and CDS Index Options and Single Names and NDFs.

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