Electronic trade processing service for over-the-counter (OTC) derivative transactions, MarkitSERV, has launched MarkitSERV Credit Centre, a pre-trade credit checking solution for the OTC derivatives market which will initially cover OTC credit, foreign exchange and rates and will expand to other instruments such as equity derivatives, futures and options.
MarkitSERV Credit Centre will provide clearing certainty for trades executed in electronic marketplaces, including swap execution facilities. This will help firms meet new regulatory requirements, including those set up by Dodd-Frank.
"Dodd-Frank requirements give rise to a series of challenges for the industry around electronic trading and central clearing," said Jeffrey Maron, managing director at MarkitSERV. "The need for trade certainty is top of the list. Our ultra-low latency service will allow participants to transact with confidence."
MarkitSERV Credit Centre will allow buy-side firms, regional banks and other institutions which access clearing through futures commission merchants (FCMs) to obtain a consolidated view of the credit available to them from their FCMs. The new service has been designed to help institutions determine how they deploy their credit lines among multiple clearing venues.
According to Will Rhode, director of fixed income research at TABB Group, ever since regulators proposed a horizontal structure for the clearing and execution of swaps, the industry has been struggling to understand how to manage the so-called 'certainty of execution' issue, or the risk of a trade being rejected in a fragmented clearing environment.
"Solutions that help rationalise this and provide greater visibility into credit eligibility will be welcomed by clearing brokers, executing brokers and swaps users alike," he said.
FCMs will update credit lines during the trading day as client portfolios change, and electronic execution venues will "ping" the credit centre to confirm the availability of credit at the time a trader wishes to post a price or execute an order, removing the risk of a trade failing because a firm has exceeded its credit limit.
The service can also be used for checking and managing credit lines required for off-facility voice and block trades.