At the FIA Europe International Derivatives Expo (IDX) conference this week in London cross-border regulation was a main theme among central clearing and execution via SEFs – naturally. Those who attended listened to panel discussions and presentations offering updates and views on global regulation, the cost of clearing and “SEFology.” And news announced this week zeroed on a few themes: CCP authorisation for EMIR, market standards, and new trade reporting solutions. Here is a recap of the announcements and a mention of my favourite article covering the event.
LCH.Clearnet Limited Receives EMIR Authorisation
It was mentioned on a panel at the event that LCH.Clearnet Limited’s authorisation was imminent and the clearinghouse confirmed this with announcement that Bank of England approved its application as a central counterparty under EMIR. LCH.Clearnet joins other CCPs on the authorisation list – See the full list of authorised CCPs on the ESMA website.
A Standard for SEFs
Paving the way towards the adoption of standardised messaging in swaps trading, FIX Trading Community announced that nine swap execution facilities (SEFs) are using FIX protocol to trade swaps under the Dodd-Frank requirement for electronic execution of certain derivatives.
Speaking to DerivSource, Sassan Danesh, Co-Chair FIX Trading Community Global Fixed Income Subcommittee, and Managing Partner of Etrading Software commented on the success FIX has achieved in establishing it as a standard in the new world of swaps trading.
He said: “The widespread adoption demonstrates that the market place sees an efficient connectivity infrastructure as a common good. It provides a baseline on top of which each SEF can add its own innovation for competitive advantage. Additionally, it demonstrates the community working together to provide a market-led solution to meeting some very tough regulatory timelines for SEF go-live.”
Adoptees of FIX for trading will benefit from improvements in execution efficiency through reduction in trading and connectivity costs and increased pre-trade transparency via smoother and faster integration between parties. Firms will also be able to deploy their existing cross-asset FIX infrastructure for fixed-income derivatives to achieve greater economies of scale.
In the adoption of any standard, maintaining competitiveness is a key priority for market participants but use of FIX does not hamper innovation or competition now or in the long run, said Danesh.
He told DerivSource: “Standardised connectivity will increase competition and innovation in the marketplace in two ways: (a) incumbent SEFs will be able to implement new business functionality more easily; and (b) new SEFs will be able to attract liquidity more easily.”
The market traction doesn’t stop with Dodd-Frank though. FIX is already looking to see how other markets – namely Europe and Asia, can rely on the protocol to aid their moves to electronic execution.
Danesh said: “We have started looking at how the FIX standard for trading swaps can be applied in Europe and Asia – it is early days (given the Mifid 2 timelines), but early signs are that the majority of the specification will be applicable in Europe and beyond. We are looking forward to the day when HFT starts to become applicable to swaps and swap futures. We are working with other FIX working groups to create a global standard for high frequency market data that (amongst other asset classes) can be applicable to OTC derivatives.”
So far, BGC Derivative Markets, L.P., Bloomberg, trueEX, GFI Group, ICE Swap Trade, MarketAxess, Tradeweb (TW and DW), Tradition Trad-X and Tullett Prebon have already adopted FIX for electronic execution.
Trade Reporting – a new alternative to delegated reporting
In Europe, the upcoming reporting deadline under EMIR is likely to be front of mind and those considering delegated reporting services now have another new alternative to consider – TRAMS.
Contango and Kynetix have teamed up to launch TRAMS, a data matching tool designed to ease EMIR trade reporting related complexities. Too many firms relied on quick fixes with spreadsheets and the like to make the February EMIR deadline but such fixes won’t stand up to regulatory scrutiny once enforcement begins warns, Richard Wilkinson, director, post trade solutions at Contango.
As a reconciliation tool, TRAMS ensures the data transmitted to the trade repositories matches up with the firm’s own records and the outputs received from the repositories is consistent as well. All date much be fully reconciled to prove the firm is compliant.
TRAMS is based on Kynetix’s existing reconciliation and exception management platform, i-Balancer, which was developed to support firms active in dealing in both OTC and exchange-traded derivatives.
The new solution can be used by end users or brokerage firms who want to offer a white-labeled service to their clients.
Wilkinson told DerivSource: “Ultimately TRAMS is for end users to provide them with regulatory certainty. However we believe that GCMs could offer this as a value added service for customers. At an industry level a utility model incorporating data from the TRs themselves would be desirable but difficult to achieve.”
Contango and Kynetix are already in talks with several firms about the new TRAMS solution.
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Weekly news roundup
http://development.derivsource.com/weekly-news
IDX Coverage – Favourite Read
“IDX Beat: futures industry regenerates”
http://www.ft.com/cms/s/0/559acd76-f0cd-11e3-8f3d-00144feabdc0.html?siteedition=uk#axzz34QAARQqq
