The new MarkitSERV Credit Centre is a pre-trade credit checking solution for the over-the-counter (OTC) derivatives market. The new platform uses Cinnober technology to operate and is designed to provide the buy-side with a consolidated view of available credit and provide certainty for trades executed in electronic marketplaces, including swap execution facilities.
Designed for the ‘new normal’ post-crash regulatory situation that is now coming in with Dodd-Frank in the US and other global legislation that is forcing OTC trades to go via a central counterparty (CCP) clearinghouse and adhere to increased reporting obligations in accordance with the G20’s wishes, the new MarkitSERV Credit Centre is quickly expected to find users. The first US Commodity Futures Trading Commission (CFTC) mandate to centrally clear OTC derivatives came into being on 11 March. [For more on this issue visit the Bobsguide show report on the recent FPL EMEA Trading Conference in London -Ed].
The new MarkitSERV Credit Centre gives buy-side firms, regional banks and other institutions that access clearing via futures commission merchants (FCMs) with a consolidated view of the credit available to them from their FCMs. It also helps institutions determine how they deploy their credit lines among multiple clearing venues.
FCMs will update credit lines during the trading day as client portfolios change, and electronic execution venues will alert the MarkitSERV Credit Centre to confirm the availability of credit at the time a trader wishes to post a price or execute an order. This should remove the risk of a trade failing because a firm exceeded its credit limit. The service can also be used for checking and managing credit lines required for off-facility voice and block trades.
The ultra-low-latency system required for the Credit Centre is being provided by TradeExpress from Cinnober, an existing software vendor in the financial markets, which already has many major trading and clearing venues as clients, so hopefully ease-of-use problems will not arise.
Commenting on the launch Jeffrey Maron, managing director at MarkitSERV, said: “As a provider of financial market infrastructure, MarkitSERV is highly-qualified to offer clearing certainty through our Credit Centre. Dodd-Frank requirements give rise to a series of challenges for the industry [in the US] around electronic trading and central clearing. The need for trade certainty is top of the list. Our ultra-low-latency service will allow participants to transact with confidence.”
Technology development for the first phase of the Credit Centre is complete and on-boarding for buy-side firms and FCMs is already underway. Firms can register at MarkitSERV.com to begin testing should they wish to join.
The MarkitSERV Credit Centre will initially cover OTC credit, foreign exchange (FX) and interest rates and will expand to other instruments - such as equity derivatives, futures and options - and to managing credit for non-cleared trades in the future. A centralised credit limit hub is a theoretically cost-effective solution for market participants because they can view and manage credit with one connection rather than creating and maintaining connections to every trading and clearing venue in the market. But it only works of course if enough people move over to it.
“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,” says Will Rhode, principal and director of fixed income research at the TABB Group consultancy. “Solutions that help rationalise this and provide greater visibility into credit eligibility will be welcomed by clearing brokers, executing brokers and swaps users alike.”