Leading inter-dealer brokers GFI Group (GFI), ICAP, and Tullett Prebon have announced that they intend to launch a common electronic check out service for over-the-counter (OTC) derivatives.
The service, which can apply to trades executed anywhere in the world, will be operated by DTCC Deriv/SERV LLC, a wholly owned subsidiary of The Depository Trust & Clearing Corporation.
The new service will provide a single point for the integration of dealers' trade capture systems to multiple inter-dealer brokers. It will create a single centralized hub where dealers can review, verify and affirm OTC derivative trade information, regardless of which inter-dealer broker arranged the trade. At the option of the dealer, electronically verified transactions can be automatically submitted to DTCC Deriv/SERV, resulting in legal confirmation within seconds of trade verification.
Expected to go live early in 2006, the service will initially include single name credit default swaps, as well as credit default index and tranched index products. Expansion to other OTC derivative products, such as interest rate swaps and swaptions, equity options and other equity derivatives is also planned. The founding inter-dealer brokers and DTCC intend to operate this service in a pilot mode for one year, after which they plan to have other inter-dealer brokers participate. The inter-dealer brokers intend to offer the service at no charge to their customers. DTCC will also waive any recovery of its operating costs during the pilot phase.
The three founding brokers together represent a significant portion of OTC derivatives trades. DTCC Deriv/SERV is the leading provider of electronic trade confirmation and post-trade processing services for credit derivatives globally and also provides electronic confirmation services for interest rate and equity derivatives.
"The industry needs a truly independent mechanism for managing, transmitting and verifying important trade data, and we are pleased to provide this solution with our peers and DTCC," said Colin Heffron, president and director of GFI. "Traders have asked us to be able to electronically check out details of derivatives transactions across multiple brokers on a single platform, so we are sure this will be well received."
Ron Purpora, co-chief executive, ICAP North America said, "We are pleased to be part of an industry effort which affords our mutual customers the ability to seamlessly submit credit default transactions according to the DTCC standard. By extending post-trade feed capabilities for more complex products, this initiative is part of ICAP's overall objective of improving trading efficiency in the interdealer markets."
"We are delighted that DTCC has agreed to operate this electronic checkout capability on behalf of us all," said Ed Novak, executive vice president and head of credit derivatives, Tullett Prebon. "DTCC has the infrastructure and resources in place to support this service world-wide, and is already a major player in post-trade processing of credit derivatives transactions. The link between this trade check out capability and DTCC's legal execution service will further streamline post trade processing for our mutual customers."
As the derivatives industry continues to evolve with new market participants and new products entering the market at a rapid pace, the development of automated solutions remains an important priority. "DTCC is committed to working with key market participants, such as these leading inter-dealer brokers, to further enrich our platform and to continue delivering innovative products that will help the industry attain its goal for full market automation," said Peter Axilrod, managing director, DTCC.