Markit (Nasdaq: MRKT), a leading global diversified provider of financial information services, today announced the development of a new comprehensive service for electronic trade confirmation and exercise management for the FX options market.
The service will be deployed by MarkitSERV, Markit's trade processing service for the OTC derivatives industry.
Barclays, Citi, HSBC, J.P. Morgan, Morgan Stanley, Nomura, RBS, UBS and major buyside institutions, including Citadel's Global Fixed Income Fund, are working with Markit to design the new service that will provide electronic legal trade confirmation and an electronic system to manage the exercise processes for FX options. This post trade solution will help participants reduce operational risk and become more efficient in their management of FX options trades.
The new service will improve front and back office processes such as:
• Centralised generation of legal trade confirmations
• Straight-through-processing (STP) of exercise actions
• Realtime communication of exercise actions via an audited platform
• Management of other lifecycle events based on a confirmed matched trade population
James Bindler, global head of G10 Foreign Exchange at Citi, said: "Manually exercising FX options is a vestige from an earlier era of FX options trading. Automation of this process will help to reduce both uncertainty and risk in a market where volumes have grown substantially over the past years."
Rich Mazzella, chief operating officer of Citadel's Global Fixed Income Fund, said: "The next step in the evolution of the vanilla and exotic FX options markets should be an electronic solution to support new trade affirmation and lifecycle event processing in an automated, robust and efficient manner. We believe Markit has the experience and know-how to provide such a solution."
Andrew Soper, global head of G10 Flow Options at Nomura, said: "The current processes required to manage FX option expiries are archaic so introducing up-to-date techniques will aid all involved in this market. Creating a centralised confirmation process for all post trade functions will improve operational efficiency, reduce costs and contribute to a better functioning market."
John Newman, head of European FX option trading at UBS, said: "Although the FX options market has evolved considerably over recent years, it is important for all its participants that this evolution continues. Increasing the efficiency, transparency and certainty of the lifecycle process will benefit all."
Keith Tippell, managing director and head of FX processing at Markit, said: "The FX options market needs a comprehensive, centralised solution for trade confirmation and exercise which reduces risk and improves efficiency. We have had great success in providing the industry with processing solutions in other markets such as rates and credit for over a decade, and we aim to become the venue where all participants come for FX confirmation and exercise."
Central confirmation of FX trades makes it more efficient for the FX market to comply with regulatory requirements, such as pairing unique trade identifiers for regulatory reporting, and provides a foundation for compliance with future FX regulation, such as requirements for clearing.
Markit intends to expand the service to provide legal confirmation for non deliverable forwards (NDFs). Doing so will complement its existing MarkitSERV clearing middleware service for NDFs.