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Building an infrastructure to accommodate even the known obligations is only the beginning of a long term investment and commitment (time and people). From Day 1 you’ll have to maintain and upgrade a multitude of connections (and associated workflows) to a host of execution venues and clearing and reporting participants. Even for a large buy side firm, this ongoing cost may prove prohibitive. By contrast, a single connection to the MarkitSERV FX platform supports all post trade connectivity, processing and workflow requirements - current, imminent, looming and any new requirements that may arise in the future.
As a fund administrator, the most important aspect for us is integration with internal reconciliation and allocations systems. As such, we would be better off not outsourcing connectivity.
ND: As an essential participant in the FX trade lifecycle, fund administrators will need to accommodate new clearing and reporting requirements, including receiving trade messages with associated USIs. Rather than managing the burden of building the necessary ‘spaghetti’ to connect to multiple client counterparties, a single connection to MarkitSERV is the only pipeline required to receive trade information efficiently.
As a small domestic bank, most of our business is in spot; since we have few changes to make we can wait and see how things develop.
KT: Unless all of your FX business is spot (which is not likely), you need to act now to accommodate reporting and clearing requirements for any non-spot business. All non-spot trades must be reported and NDFs must be cleared. While doing nothing and waiting to see what happens is a strategy, it isn’t likely to be a winning one; playing (inevitable) catch-up will be much more expensive and a much greater resource burden. Change is coming and it will require changes to your process workflows. To paraphrase William Henry Davies, there is no time to stand and stare.
We don’t need to start work on this until SEFs are up and running and all regulatory changes are finalised.
KT: You really do. SEFs will not be up and running until some time after new regulations are finalised, and in force. As such, you will have clearing and reporting obligations that precede the arrival of SEFs. Further, not all business will be required to be transacted through SEFs. Most firms have already started to address new clearing and reporting challenges and many are finding that using a middleware provider is the most effective
Keith Tippell
and efficient way to meet regulatory obligations and deadlines. Further, most SEFs are expected to publish to the MarkitSERV platform to reach designated FX CCPs.
And don’t take our word for it. David Holcombe, of Rule Financial, a trading specialist and business IT consultancy, has been quoted saying “Firms not doing their heavy lifting now – to build the foundations that don’t need final detailed regulation in place – are putting themselves at risk of ultimately having too much big organisational, operational and technical change to achieve in an impossible time frame.”
Keeping trade confirmations, reporting and clearing separate is going to be more cost-effective at this stage and until the new infrastructure is established; this will also reduce risk.
ND: For some firms, for example those with very high spot activity, migrating all processing to a clearing and reporting platform may not be efficient. However, for
july 2012 e-FOREX | 117 Nick Dyne
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