In response to customer demand for a more secure, reliable and streamlined operational environment, the new company will provide a single gateway for confirming over-the-counter (OTC) derivative transactions globally. This will allow buy-side and sell-side OTC derivative market participants to confirm trades and to gain access to additional services provided by Markit and DTCC through a common portal.
The new company will comprise Markitâs recently acquired Markit Wire platform (formerly SwapsWire) as well as its other trade processing services such as Markit Trade Manager, Markit Tie Out and Markit PortRec. DTCC will contribute its Deriv/SERV matching and confirmation engine, and its AffirmXpress, MCA Xpress and Novation Consent services. Additional services that will not become part of the new company include Markitâs data and valuation services and DTCCâs downstream Trade Information Warehouse, centralised settlement and payment netting services.
This initiative should accelerate the adoption of electronic processing solutions across the rapidly growing, $454 trillion, OTC derivative market where approximately 50% of transactions are still confirmed on paper. The new company will be quicker to market, provide better client solutions and rationalise infrastructure.
âBoth DTCC and Markit have been instrumental in the OTC derivative communityâs efforts to strengthen the operational infrastructure of this dynamic market,â said Eraj Shirvani, chairman of the International Swaps & Derivatives Association (ISDAÂ®) and managing director and co-head of European Credit at Credit Suisse. âThis alliance is a groundbreaking combination that reaches across borders and asset classes to provide a service that will help a wide range of market participants achieve greater certainty in their transaction processing.â
The new company will be jointly owned by DTCC and Markit, and will be governed by an 11-member board of directors . Michael Bodson, executive managing director for DTCCâs business management and strategy overseeing all DTCC business lines, will be chairman of the new company. Jeff Gooch, executive vice president of Markit, will be the new companyâs chief executive officer.
âSince launching Deriv/SERVâs matching and confirmation service in late 2003, DTCC has been committed to helping the OTC derivatives community automate transaction processing and build a robust infrastructure in this rapidly growing market. This important new strategic partnership with Markit reflects our ongoing strategy of aligning with other key service providers as a way to help the industry meet its goals and to better serve our customers,â said Michael Bodson.
âBy combining the individual strengths of Markitâs trade processing services and DTCCâs Deriv/SERV, we are taking a major step forward in addressing the calls from global regulators and customers for a fully integrated system for processing OTC derivatives. We believe the time is right for consolidation around a combined framework to address the challenges of rapid growth, operational risk and high costs in the OTC derivative markets,â said Lance Uggla, chief executive officer of Markit.
In addition to facilitating greater industry adoption of electronic confirmation, the new company will offer automated trade affirmation, trade allocation and novation consent solutions to the market on a cross-product basis. It will initially support both DTCCâs and Markitâs confirmation platforms.
The new company will be headquartered in London, with a second major centre of operations in New York City, and representative offices in Europe and Asia. The combined business will have over 1,100 financial institutions as customers, and annual transaction volumes of over 7 million across the OTC interest rate, credit and equity derivative markets.
The DTCC-Markit agreement will become effective following completion of due diligence, regulatory filings and approval by relevant global regulators, including those in the U.K. and U.S. The name of the new company will be announced at a later date.