The market slides today, a freak snowstorm, MF Global losing more money than the Kardashians (a $10 million wedding for a 72-day marriage?), and the ongoing European debt woes are forcing me to look for glimmers of hope. Luckily, I found them in a global push for greater transparency in over-the-counter (OTC) derivatives market, and sadly that makes me happy.Here is what I found:
- The Depository Trust & Clearing Corp. (DTCC) announced today that it has applied to the US Commodity Futures Trading Commission to operate a swaps data repository (SDR), dubbed the DTCC Data Repository for multiple OTC derivatives asset classes. The DTCC Data Repository will provide trade repository and reporting services for OTC credit, interest rates, equities and foreign exchange derivatives. Separately, the DTCC has applied to provide a SDR for commodities via the Global Trade Repository for Commodities, an alliance between the DTCC’s Deriv/Serv subsidiary and EFETnet, an Amsterdam-based provider of electronic data exchange and post-trade processing, set up by the European Federation of Energy Traders (EFET). The alliance, announced in June, will help the DTCC globalize the commodities repository.
- Hoping to get a jump on legacy providers, Spring Trading Inc., based in Summit, NJ, is readying a fourth quarter debut for the TeraExchange, a central limit order book execution facility for OTC cleared derivatives. The TeraExchange, registered as an exempt board of trade (EBOT) for swaps and other OTC cleared derivatives will offer cross-asset trading, analytics and voice-brokering services. Spring Trading is targeting corporations, hedge funds, asset management firms and energy firms. TeraExchange promises enhanced liquidity, improved pricing, full anonymity pre-trade credit checks on all bids/asks, mitigated counterparty risk through central clearing with the CME, ICE and LCH exchanges. Firms can use TeraExchange for cleared OTC derivatives such as interest rate and credit default swaps, energy swaps, non-deliverable forwards and equity swaps. Slated to become a swaps execution facility (SEF) next year, TeraExchange will also offer FCM pre-trade credit checks; clearing via multiple clearinghouses based on contract; support for algorithmic trading; FIX access to exchanges; pre-trade transparency and straight through processing for SDR reporting.
- Hong Kong is moving quickly toward centralized OTC derivative clearing and reporting, according to Edmond Lau, executive director (monetary management) for the Hong Kong Monetary Authority (HKMA). Lau, who gave the keynote address last week at the 2011 ISDA Annual Conference in Hong Kong, says the HKMA’s Central Moneymarkets Unit will be responsible for the trade repository of transactions “of systemic relevance to Hong Kong.” In addition, the Hong Kong Exchanges & Clearing Ltd. will set up a clearinghouse. “These two important pieces of infrastructure are expected to be launched in the third quarter of 2012,” Lau says. The clearing and reporting requirements are “tentatively” scheduled for a January 2013 debut and will not apply to all products and market players, but the scope of coverage will be gradually extended, he says.
- The Polish central counterparty (CCP) clearinghouse KDPW_CCP will communicate with clearing participants via ISO 20022 standard clearing messages over SWIFT’s networks. The move by KDPW_CCP will let clearing members re-use incumbent SWIFT connections to receive ISO messages that facilitate clearing flows for cash equities. The initiative will help the Warsaw-based clearinghouse to align with European market “harmonization initiatives” as well as help cut operational risks and costs says Iwona Sroka, president and CEO of KDPW_CCP. The SWIFT XML messages will cover trade leg management, position and settlement management, and risk and collateral management. The new service for OTC derivatives will launch next year and the clearinghouse will use SWIFT’s Accord for Treasury for matching OTC derivatives transactions.
Why do these aforementioned news items this make me happy? To answer, I’ll quote Mr. Lau from his speech. “Taken together, interconnectivity and opaqueness were a perfect recipe for disaster,” he says about the OTC markets. “Interconnectivity meant high contagion risks and the ability for a single failure to spread to the entire financial system. Opaqueness meant that many firms were simply unaware of these contagion risks.”
So, despite the whining over OTC derivatives reforms, I’m glad that industry organizations are forging ahead to offer solutions that help end opaque markets, which helps everyone and might prevent future disasters. That alone is encouraging.
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