Markit, a financial information services company, held a press briefing in London yesterday to discuss current regulatory concerns stemming from the financial crisis, and initiatives under way to improve the transparency and resilience of the marketplace further.
Markit’s briefing centred on the issues of market infrastructure, transparency and valuations for the over-the-counter (OTC) markets, including the following initiatives:
Creating a more resilient market infrastructure to reduce operational risk:
o Markit and The Depository Trust & Clearing Corporation (DTCC) are soon to launch a new company which will provide a single, integrated cross-asset class trade processing gateway for OTC derivative transactions worldwide.
o Markit and Creditex have launched a credit default swap (CDS) portfolio compression service for single name CDS which has already conducted compression cycles for European and North American credits with the participation of 15 dealers. The firms plan to conduct regular cycles to reduce significantly notionals outstanding in this market.
o Markit Wire, the trade date legal confirmation service, feeds interest rate derivative trade information to LCH.Clearnet, facilitating intraday clearing through a central counterparty.
Enhancing transparency in the OTC markets:
o Markit offers high quality, comprehensive daily consensus pricing for CDS, ABS, corporate bonds and syndicated loans, with many of these prices updated intra-day. The firm will soon launch an evaluated bond pricing service which will target global coverage of bond markets and complement Markit’s existing pricing and valuation services.
o Markit has recently made its mark-to-market CDS data freely available in the short term to institutional investors that do not subscribe to this service currently, in order to facilitate the valuation of CDS positions in an environment of reduced availability of dealer quotes.
o Markit intends to make RED index codes freely available to buy-side clients for the purpose of identifying and confirming CDS index trades via the DTCC. Markit RED helps remove the potential for error in CDS trade processing.
o Markit provides MiFID-compliant pre-trade transparency and post-trade reporting for the pan-European OTC equity markets through Markit BOAT.
Providing independent valuation of OTC instruments:
o Markit’s Totem service delivers millions of price points for exotic OTC derivatives at month-end and is the accepted benchmark for sell-side valuations.
o An extraordinary Totem ‘run’ was held on 15 September to support client derivative valuations in difficult markets.
o In response to demand from regulators and market participants, Markit will launch a daily Totem service in the coming months to offer all market participants a tool for independent price verification of vanilla OTC equity, currency and commodity derivatives.
o Markit Portfolio Valuations provides the buy-side with an independent post-trade calculation of the gross asset value of a portfolio of OTC derivative and cash positions. The service is calibrated with Markit’s proprietary observable data, received from the world’s largest market makers.
o Scheduled to launch by early next year, Markit Valuations Manager will act as a central portal for buy-side firms wishing to gain access to dealer marks and Markit’s portfolio valuations service. The new platform will increase transparency and reduce operational risk significantly.
Marcus Schüler, managing director and head of Regulatory Affairs at Markit, said: “Markit has provided pricing transparency for all the main OTC asset classes throughout this period of market dislocation. We will continue to work closely with regulators and industry bodies, as well as buy-side and sell-side institutions, on initiatives that further reinforce transparency and resilience in the global markets.”
Lance Uggla, chief executive officer of Markit, said: “We have not seen market conditions like these in decades, and it has become increasingly important for market participants to work together to improve market infrastructure. Markit has embraced this challenge and will continue to look for ways to increase efficiency and transparency in the overall markets.”