BATS Chi-X Europe Links to ICAP to Trade Equity Index EFPs

Traders will now be able to execute orders and clear trades in equity index Exchange for Physical (EFP) securities transactions anonymously.

ICAP will be the first broker to use the new BATS trade reporting facility service dubbed “BXTR.” By using the new BATS system, ICAP offers the buyside the ability to trade a cleared pan-European equities EFP solution.

An EFP involves the simultaneous exchange between two parties of a futures position for a position in the underlying asset. EFPs are currently traded over-the-counter (OTC) with the futures leg of the transaction being exchange-traded and cleared, and the cash/physical leg settled on an OTC, bilateral basis.

The need for the BXTR system is rooted in the changing European regulatory landscape, as traders in all asset classes are working to reduce their counterparty risk, which can be a particular issue with bilaterally OTC trades. BATS and ICAP joined together to develop services that, taken together, help traders achieve alpha and trade more efficiently while reducing risk.

“The versatility of BXTR has been further demonstrated with this new EFP service, which will allow for more effective balance sheet management, and for operational workflows to be standardized,” said Mark Hemsley, chief executive of BATS Chi-X Europe. “By settling more trades with CCPs and netting settlements, counterparty risk and costs across the European market will be reduced.”

BATS enhanced its BXTR for EFPs by expanding its Exchange Trade Reporting services to enable the cash basket of the EFP to be traded on-exchange. ICAP’s Fusion system – the firm’s e-commerce portal for trading venues will be used at the point of entry for traders.

ICAP will make available fully cleared equity index EFPs on its ISL MTF and will also facilitate traditional voice broking in these products via its cash desk.

Once trades are accepted by BATS, they will be published in real time as on-exchange, off-book trades. All trades will be codified using Market Model Typology (MMT). BATS was the first exchange in Europe to introduce the MMT standard, which is now under the supervision of FIX Trading Community.