FX MYTHBUSTERS
FX trade workflows and regulatory change
New regulations mandating clearing of FX OTC products and trade reporting of all non-Spot trades will not only introduce the need to connect to central counterparties (CCPs), Swap Execution Facilities (SEFs) and Trade Repositories to the FX back office, it will also impact all aspects of the clearing workflow for FX derivatives. Nick Dyne and Keith Tippell, co-heads of MarkitSERV’s FX business debunk a few myths around just how much market participants will be impacted by the new regulatory landscape.
As a small buy side firm, the new regulations will not affect us greatly as our banks and brokers will send the necessary trades to CCPs and SEFs and report these trades for us. It will not greatly affect how we process trades today.
KT: All buy side firms should, as best practice, store USIs (Unique Swap Identifiers) for all reported FX trades since it will be the specific identifier used by the regulators to investigate any trades. US entities may have additional reporting obligations over and above this requirement. While the impact of change may not seem particularly onerous to a small buy side firm, appropriate connectivity will still need to be established to accommodate workflow changes.
MarkitSERV is trade source, participant and destination agnostic; our partnership with SWIFT, for example, enables us to process users’ NDF trades through to clearing and to deliver cleared state messages – with USIs as appropriate – back to users. Moreover, many small buy side firms are already
116 | july 2012 e-FOREX connected to the MarkitSERV FX platform. As
such, the conduit is already in place to facilitate future reporting and clearing processing and workflow requirements.
As a large buy side firm, our main concern is processing bilateral confirmations alongside connectivity to clearing venues; as such, we would be better served building a solution in house.
ND: Not really. New confirmation, clearing and reporting requirements are already complex; with different regulators and rules in different locations, multiple and varying trade processing workflows, numerous (and growing numbers of) end destinations (CCPs, trade repositories etc). Tere are already five FX CCPs – with more to come. By its very nature, matching (legal confirmation) will require connections to all execution brokers. Non-US CCPs will have to register as DCOs (Derivatives Clearing Organisation) to clear any US business. It is also impossible to predict with any certainty what the regulated FX end state might look like.
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