With the official launch of swap execution facilities (SEFs) on October 2, a new trading structure for OTC products is underway. Today, with almost 20 SEFs operational or in the works, the question for many market participants is: how will all the trading and reporting work?
JLN editor-in-chief Jim Kharouf sat down with Jeffrey Maron, managing director, product management for MarkitSERV, to talk about the reporting aspect of these swaps transactions.
Under the new SEF rules, it is the SEF’s responsibility to send executed trades to the clearinghouse. Prior to the new rules, it was the counterparties who reported such trades. This new model, which follows the futures industry, has led to a slight alteration in the reporting structure. Markit is one of the firms that provides the reporting pipes and services that SEFs need. Maron says that not only does MarkitSERV aim to handle the US-based SEFs but also address a slightly different reporting regime for European participants.
MarkitSERV is also moving into the pre-trade risk space as well for the buy-side and brokers. Depending on the transaction, the firm can help buyers and sellers execute a swap trade without even knowing the counterparty, a major departure from traditional OTC deals. Maron says this can be done today because of central clearing of swaps trades. MarkitSERV’s Credit Centre service, which is powered by technology from Cinnober, allows firms to plug in their credit lines with their broker or FCM, designate whichever SEF they would like to use, check the trade before it is executed at the SEF and confirm that the trade can be cleared by the clearinghouse. Ultimately, this will help eliminate the possibility of a trade failing because it exceeded a credit limit.