Leading US investment banks have been crowned as the first futures commission merchants (FCMs) that will be using MarkitSERV Credit Centre, the new low latency pre-trade credit checking solution designed for the OTC derivatives market. The trio includes; BofA Merrill Lynch, Citi, and Goldman Sachs. The new solution devised by the financial information services company, Markit, provides clearing certainty for trades that are executed in electronic and hybrid marketplaces.
The adoption, by the world’s largest banks is a promising sign for the firm, Jeffrey Maron, managing director at Markit, spoke about the banks joining, he commented in a statement: “The industry understands that providing clearing certainty is one of the challenges resulting from Dodd-Frank. We are pleased that BofA Merrill Lynch, Citi and Goldman Sachs are the first of many FCMs to agree to adopt Credit Centre as the mechanism to share credit line information with their clients and trading venues. Despite all the changes to the OTC derivatives market, MarkitSERV continues to provide the cross asset infrastructure that allows participants to transact safely and efficiently.”
Regulations, regulations & more regulations
MarkitSERV has been leading the way in developing a complete pre-trade solution for participants in the OTC derivatives markets. The need comes on the back of regulatory changes being put forward under the Dodd-Frank Financial Reform Bill. As markets shift from voice to electronic, new trading venues have been created; the much awaited Swap Execution Facility (SEF) will be the latest venues for OTC trade execution.
Speaking about the new solution, Robert Burke, managing director and head of Global OTC Clearing at BofA Merrill Lynch one of the first FCMs, said in an official statement: “Credit Centre’s low-latency system for managing credit lines creates efficiency in our market and MarkitSERV has established itself as a provider participants can turn to for industry-wide solutions.”
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Tried & tested technology
The MarkitSERV designed solution has been developed using technology by Cinnober, a solution provider to leading exchanges. Electronic markets are time sensitive and buy-side firms are constantly exploring new techniques to achieve low latency trading. “The low latency and push credit services provided by Credit Centre make it easier for execution venues to enter the swaps market. trueEX supports credit checking solutions that will give our clients the assurance of pre-trade certainty of execution and clearing,” said Sunil Hirani, co-founder and chief executive officer of trueEx in a press briefing.
The Financial Reform Bill aims to prevent the failings witnessed in the midst of the credit crunch, when a century old investment bank suffered at the hands of mis-calculated credit and counterparty risk. MarkitSERV’s Credit Centre acts as a centralised credit limit hub which allows market participants to view and manage credit with just one connection rather than creating and maintaining connections to each and every trading and clearing venue in the market.
“Maximising our flexibility in how we trade and where we clear is extremely important to us. Using Credit Centre to view and optimise our credit lines helps us operate more efficiently in the new world of derivatives trading,” concludes Matthew Lynes, portfolio manager at Aberdeen Asset Management.
Technology rival Traiana launched its pre-trade credit solution in May 2013.