JPMorgan is adding foreign exchange to its over-the-counter (OTC) clearing offering. The company is continuing its efforts towards clearing as the upcoming MiFID II regulations are expected to drastically change trading in the area. The bank cleared its first non-deliverable forwards (NDF) trades via LCH Forexclear on behalf of non-member clients earlier this month.

With the introduction of the next generation of the EU-wide regulatory framework, changes to OTC clearing include a requirement for  Straight-Through-Processing (STP)  Straight-Through-Processing (STP) Straight-Through-Processing (STP) is a type of execution, where the broker is forwarding the bulk of the flows it receives to the market. This is mostly to help speed up their respective transaction processing times.STP provides a means of ensuring that orders are processed in a “straight-through” fashion, devoid of delays and requotes. As its name suggests, the primary rational of STP is to allow brokers to have the same information be streamlined through a process across multiple points. Intuitively this helps eliminate manual processing by employees for having to enter information repeatedly or checking to ensure a transaction is fully processed.Unlike stock markets, the FX market does not boast a physical location. Consequently, there is physical record of all trade executions and transactions. Instead, everything is electronic and virtual. What STP brokers do when an order is placed by the trader, is to locate and match the order a counterparty who is ready to pick up the order at the agreed price.Is Your Broker STP?STP is considered by some as a hybridized model between market makers and ECNs. However, the term is widely abused in the market as many forex brokers claim to be STP are in reality internalizing flows.To date there is no reliable way to establish whether that is the case, however it pays to know that traditional STP brokers charge a commission and a spread on the trade instead of only relying on booking gains from a trader’s P/L. Prices at such brokers are generally considered to be closer to the interbank rates. Straight-Through-Processing (STP) is a type of execution, where the broker is forwarding the bulk of the flows it receives to the market. This is mostly to help speed up their respective transaction processing times.STP provides a means of ensuring that orders are processed in a “straight-through” fashion, devoid of delays and requotes. As its name suggests, the primary rational of STP is to allow brokers to have the same information be streamlined through a process across multiple points. Intuitively this helps eliminate manual processing by employees for having to enter information repeatedly or checking to ensure a transaction is fully processed.Unlike stock markets, the FX market does not boast a physical location. Consequently, there is physical record of all trade executions and transactions. Instead, everything is electronic and virtual. What STP brokers do when an order is placed by the trader, is to locate and match the order a counterparty who is ready to pick up the order at the agreed price.Is Your Broker STP?STP is considered by some as a hybridized model between market makers and ECNs. However, the term is widely abused in the market as many forex brokers claim to be STP are in reality internalizing flows.To date there is no reliable way to establish whether that is the case, however it pays to know that traditional STP brokers charge a commission and a spread on the trade instead of only relying on booking gains from a trader’s P/L. Prices at such brokers are generally considered to be closer to the interbank rates. Read this Term). JPMorgan also highlights as a factor the cleared volumes growth due to the new variation margin rules introduced on the 1st of March earlier this year.

Under the European Markets Infrastructure Rules (EMIR), parties have to collateralize their marked-to-market exposure in OTC derivatives. The variation margin requirements have been applied to all uncleared OTC transactions. The move included FX forwards, FX swaps and cross-currency swaps, among others, which sparked client interest in cleared products.

The Global Head of ForexClear at LCH, Paddy Boyle, commented on the growing business: “LCH continues to see record volumes growth at ForexClear, as the introduction of the uncleared margin rules continue to drive material demand for clearing across dealers and end users.”

JPMorgan is aiming to update its offering before the launch of MiFID II, launching OTC FX products clearing in order to provide clients with full transparency across the  Execution  Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Read this Term chain.

Commenting on the news, the Managing Director and Head of Global Clearing at JPMorgan, Nick Rustad, said: “This launch is focused on automation of flow which is key to our non-member clients. It enables us to provide clients greater transparency of the clearing status of their trades from execution to settlement."

“This was a joint effort across Execution and Clearing businesses, as part of JPMorgan’s commitment to support non-member clients in the cleared FX space,” Mr Rustad explained.