FEATURE
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Dyne stresses that while clearing is the headline story, what is really going on is a huge automation of FX workflow, in respect of cleared and uncleared trades. “While clearing may be a catalyst for change over the next few years, because it changes the processing economics for FX, the industry has realised that it is not necessary to own these post trade processes and these will, increasingly, be outsourced to third parties like MarkitSERV. In short, why do the work if you don’t have to.”
Trade Repositories
Te requirement to report OTC trades to a central trade repository is a wholly new regulatory requirement for the FX back office and Tilo Derenbach, co- Managing Director of REGIS-TR, a European central repository for global OTC trades, also believes that, for FX trades, it would make sense for firms to outsource reporting to either system vendors, or the platform providers providing their matching engine, as a direct feed can be taken from there.
He says firms will need to decide where they execute, confirm and/or match FX OTC trades and from which system environment they will extract the trade data to comply with new regulatory reporting requirements by sending the necessary trade data to a trade repository.
Tey then need to decide how to interact with a trade repository, directly or indirectly and if indirectly, whether to built the interface with the trade repository themselves or purchase an interface provided by system vendors such as Murex, Calypso, Misys and many others or other specialised firms such as DealHub, MarkitSERV and Traiana that can offer such connectivity. As the trade confirmations take place in Swift and other confirmation platforms, Derenbach believes that many firms will choose to go to a third-party providing an interface to the registry rather than build the technical interfaces in-house. Te rationale behind is that the customers have very large project agendas on their desks for 2012 and prefer to use the available internal resources for more business-related topics than the compliance with regulatory requirements.
He adds: “Some firms may find it easier to have a legal relationship with the trade repository, but many will find it an advantage to use providers that have already built and tested a standard interface.”
Derenbach says that it is quite likely that the majority of FX participants will also be active in other OTC
44 | april 2012 e-FOREX
Thilo Derenbach “Some firms may find it easier to have a legal
relationship with the trade repository, but many will find it an advantage to use providers that have already built and tested a standard interface.”
derivative product classes and that therefore the customers will have to find an appropriate solution to extract and forward trade data for all these different product classes to a trade repository. Terefore the selection process in respect to the vendor of choice must be carefully evaluated.
Using available resources
For Derenbach, it is about using already available resources. Te new regulatory environment comes at an additional cost to the participants therefore they seek cost efficient solutions to ensure their compliance with upcoming regulation. Particularly smaller financial institutions and a greater proportion of the corporate community are not likely to directly connect with a repository but will rather outsource the reporting process to their counterparties. While REGIS-TR uses XML files sent via the Swift network for communicating with FX participants for the purpose of reporting to the regulators, it is currently developing the capabilities to also process Swift MT confirmation messages to ease reporting and give FX participants a choice in respect to communication path and format – allowing them to select the most efficient and cost-effective way for each individual participant.
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