FX REPORT: Markit Readies Electronic Trade Service for FX Options

Traders of options are going to get a new electronic way to manage their foreign exchange options trades.

Markit, a provider of financial information services, 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 Over the Counter (OTC) derivatives industry.

Sellside brokers such as 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:
– Centralized generation of legal trade confirmations
– Straight-through-processing (STP) of exercise actions
– Real time communication of exercise actions via an audited platform
– Management of other lifecycle events based on a confirmed matched trade population

“Manually exercising FX options is a vestige from an earlier era of FX options trading,” said James Bindler, global head of G10 Foreign Exchange at Citi. “Automation of this process will help to reduce both uncertainty and risk in a market where volumes have grown substantially over the past years.”

The 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 also 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.

According to its own data, MarkitSERV processes on average more than 80,000 OTC derivative trade events daily.