Technology Built for Real-Time Clearing

Terry Flanagan

MarkitSERV launches trade-date clearing for interdealer CDS trades.

Systems are being developed for processing OTC derivatives for clearing in close to real time.
MarkitSERV, an electronic trade processing service for OTC derivative transactions, has launch trade-date clearing for inter-dealer credit default swap (CDS) trades through its trade matching and routing service.

The vast majority of cleared CDS trades are currently cleared in batches on a five-day cycle.
“Central counterparty clearing generally reduces risk, because the two original counterparts to a trade do not face the risk of the other side not performing,” Henry Hunter, head of product management at MarkitSERV, told Markets Media. “The longer time lag there is between execution and clearing, the longer it is before that risk is mitigated by clearing.”

MarkitSERV’s real-time trade processing platform now allows each trade to be individually routed to the clearinghouse and cleared immediately following execution.  Proposed regulation in the U.S. and Europe is likely to mandate clearing of eligible OTC derivatives on a timely basis.

“The solution enables users to match and deliver their interdealer CDS trades for central clearing on trade date,” said Hunter.  “Our service offers a single point of connectivity to multiple clearinghouses and a uniform process to manage all types of derivatives trades, regardless of asset class and eligibility for clearing.”

Deutsche Bank, J.P. Morgan and Morgan Stanley were the first institutions to use MarkitSERV’s new system to match and route credit trades for clearing, in close to real time.  The trades were cleared by ICE Clear Credit.

Using the new service, counterparties approve and route each trade for clearing immediately after execution.  Trade details submitted electronically by counterparties to the new service are verified, matched and transmitted directly to the clearinghouse.

After the trade is successfully cleared, parties are notified via the MarkitSERV service.  MarkitSERV also supports real-time submission of trades by inter-dealer brokers and electronic trading platforms.  More than 100 execution venues submit trades through MarkitSERV already in credit, interest rate and equity derivative markets.

“The service is used immediately post-execution,” Hunter said. “Both dealers send a copy of trade details to MarkitSERV to be matched.  The matching process is near instantaneous.”

Delivering infrastructure that can support both cleared and non-cleared transactions on a single platform maximizes the control and efficiency around OTC derivative processing, according to Stuart McClymont, managing director, head of market initiatives and Business architecture at Deutsche Bank. “This is a significant milestone for the OTC derivatives industry.”

MarkitSERV’s new service for inter-dealer CDS clearing joins a host of other clearing solutions in which MarkitSERV acts as a universal adaptor for multiple execution venues and clearinghouses.

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