Markit Launches CDS Data Portal

Markit, a financial information services company, today announced the launch of a credit default swap information portal designed to increase transparency and provide a broader audience with a tool to monitor the market.

The new data portal will make a wide range of Markit's independent CDS data sets publicly available, including: prices for Markit's family of CDS indices, the Markit CDX and Markit iTraxx; the last quote received by Markit before New York close of trading for approximately 450 of the most liquid CDS contracts, including G20 sovereigns, large financial corporations and constituents of Markit's iTraxx and CDX indices; the biggest daily single name CDS movers for North America, Europe and Asia; and daily Markit/ICE TrustTM CDS settlement prices for the most liquid Markit CDX index contracts listed for clearing by ICE Trust.

In support of the industry's migration to a standardized CDS contract and quoting convention, Markit has published a free online calculator that converts CDS spreads into the new upfront quoting convention. Markit will also publish educational material to encourage greater understanding of the CDS market.

"The CDS market is viewed as the barometer of health for the broad credit markets," said Armins Rusis, global co-head of fixed income at Markit. "It is therefore important to make information about this market as widely available as possible. Markit remains committed to increasing transparency in the CDS market and we will continue to work with the industry to help it adapt to a changing environment."

Source URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=216000013

Markit Launches First Multi-Dealer Valuations Platform

Markit, a financial information services company, announced the launch of the first multi-bank, cross-asset client valuations platform.

Markit Valuations Manager provides a secure, standardized view of over-the-counter (OTC) derivative positions and derivative and cash instrument valuations across counterparties on a single electronic platform, according to the company.

Subscribers to Markit's Portfolio Valuations service will be able to view the bank counterparty valuations alongside Markit's independent valuations.

Markit is launching the platform with six banks - Bank of America Merrill Lynch, Citi, Credit Suisse, Goldman Sachs, J.P. Morgan and UBS - and expects to add additional participating banks over the coming months.

The new platform incorporates a dispute mechanism and workflow tools with full audit trail to enhance the price challenge process, Markit said.

The platform is integrated with Markit's Trade Processing PortRec service to enable full life cycle support for OTC derivative positions including counterparty position data delivery. "As an active member of several buy-side working groups in Europe, we welcome the ability to access normalized position and valuation data from the banks in a standardized way. Markit has not only delivered the normalization, but it is it is consolidating the information in a single electronic portal across banks. I think this is a great step forward for the industry," Patrick Finn, Head of Operations at BlueCrest Capital Management LLP in London, said in a release.

Markit says a recent survey it conducted of 50 asset managers highlighted the urgent need for an electronic, secure valuations process.

Portfolio managers currently receive numerous statements from their counterparties in multiple formats, requiring many hours of manual consolidation, the company said.

The survey found that 17% of respondents said that a single file delivery of counterparty statements would save them between 50 and 1,000 hours of work a month. On average, respondents estimated time savings of more than 49 hours a month.

The study also revealed that more complete position information and a standard statement format across all counterparties ranked as the most important improvements required, followed by an efficient price challenge mechanism. Overall, 66% of respondents said they received their counterparty statements by email, underlining the potential security risk of misplaced or incorrectly forwarded emails, Markit said in a release.

Over 65% of respondents said they were under pressure to conduct more frequent reconciliation with counterparties and provide more frequent NAV computation to investors.

Source URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=214503027

Markit Updates CDX Indices, Red Codes

Markit, the financial information services company that owns the Markit CDX indices and Markit RED, is making changes in response to the US government rescue of Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") under a conservatorship, which is classified as a bankruptcy credit event under the International Swaps and Derivatives Association (ISDA) credit derivative definitions.

New versions of all Markit CDX indices that will include either Fannie Mae or Freddie Mac as a constituent were published yesterday with both entities removed. New Markit RED codes were issued yesterday for the new versions of the Markit CDX indices, as well as for the Fannie Mae and Freddie Mac post-credit event entities, in order to reduce legal and operational risk in the credit derivative market. The Markit CDX indices are the most widely traded credit derivative indices in North America. Markit RED is the industry standard for reference entity and reference obligation identifiers used throughout the credit derivative market in trading, documentation and trade settlement.

Publish Date: September 10, 2008
Source URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=210600857

Creditex and Markit Launch Portfolio Compression Platform

Markit and Creditex has successfully completed their portfolio compression platform for the credit derivative market including its first live runs for single name credit default swaps (CDS) in the North American and European markets.

The first North American live portfolio compression run, which took place on August 27 with the participation of 14 credit derivative dealers, was conducted for CDS contracts referencing several widely traded North American telecommunications companies. It achieved a 56% gross notional reduction of compressible contracts and a 49% gross notional reduction across all participating counterparties. The first European live portfolio compression run was held on September 4 with the participation of 15 credit derivative dealers. The service was run on CDS contracts referencing several widely traded European telecommunications companies, and achieved a 53% gross notional reduction of compressible contracts and a 46% gross notional reduction across all participating counterparties.

Markit and Creditex were selected by the International Swaps and Derivatives Association (ISDA) to provide infrastructure to support commitments made by major market participants to the Federal Reserve Bank of New York relating to improved operational efficiency and risk reduction.The new portfolio compression methodology designed by Markit and Creditex is unique in that it reduces operational risk while leaving market risk profiles unchanged. This is achieved by terminating existing trades and replacing them with a smaller number of new replacement trades that carry the same risk profile and cash flows as the initial portfolio but have less capital exposure.

The portfolio compression process will be run on a regular basis to compress the most actively traded single name CDS contracts systematically across all major sectors. This will reduce the total gross notional outstanding of CDS contracts in the $62 trillion market to a significantly smaller net amount.

Publish Date: Sep 08, 2008
Source URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=210600161

DTCC, Markit to Create Single Point of Derivatives Confirmation

Washington's calls for efficient, automated processing of over-the-counter (OTC) derivatives has grown to a clamor that vendors and Wall Street firms can't ignore. Just today, Acting Under Secretary for Domestic Finance Anthony Ryan said, "With respect to market infrastructure, we are encouraging the development of an integrated operational infrastructure for the OTC derivatives market that ensures accuracy and timeliness of trade data submission, resolution of trade matching errors, and integrated processing. We are calling for a cash settlement protocol adopted by market participants and incorporated into standard documentation, and for netting, novation and clearing of OTC derivatives contracts by a centralized counterparty."

In answer to this demand -- an echo of earlier statements made by Alan Greenspan and Ben Bernanke -- the DTCC and Markit announced today the formation of a new company that will combine Markit's front- and middle-office trade processing services with DTCC Deriv/SERV's back-office post-trade confirmation and matching services, providing a single gateway for confirming OTC derivative transactions globally. Buy-side and sell-side OTC derivative market participants will be able to confirm trades and to gain access to additional services provided by Markit and DTCC through a common portal.

Industry observers responded favorably to today's announcement. "Buy-side firms are not keen to patch together a network of internal and external communication networks and systems, and have been waiting for a major dealer-backed solution," said Denise Valentine, Aite Group senior analyst. "Two dealer-backed entities " in the form of Markit and DTCC " have responded to the buy-side demand and have created a new entity to further the cause of automation and simplification."

And analysts at the Tower Group said, "This partnership will prove to be a critical turning point in the development of a single, global operating infrastructure for the full range of OTC derivatives. The combination of Markit Wire and Deriv/SERV addresses the inefficiencies associated with the current fragmented confirmations landscape, reduces the likelihood of radical regulatory intervention, and eases the strain on industry middle and back offices. Although broker dealers may be concerned that one organization now has monopoly power in OTC confirmations, TowerGroup anticipates that the governance structure will allow the industry to continue to influence the direction of the partnership. TowerGroup expects the partnership will yield a central data repository that can be the springboard for multiple new products, such as portfolio reconciliation and collateral management services."

The new company will comprise Markit's recently acquired Markit Wire platform (formerly SwapsWire) as well as its other trade processing services such as Markit Trade Manager, Markit Tie Out and Markit PortRec. DTCC will contribute its Deriv/SERV matching and confirmation engine and its AffirmXpress, MCA Xpress and Novation Consent services. Additional services that will not become part of the new company include Markit's data and valuation services and DTCC's downstream Trade Information Warehouse, centralized settlement and payment netting services.

This initiative may accelerate the adoption of electronic processing solutions across the rapidly growing, $454 trillion OTC derivative market where approximately 50% of transactions are still confirmed on paper.

The new company will be jointly owned by DTCC and Markit, and will be governed by an 11-member board of directors. Michael Bodson, executive managing director for DTCC's business management and strategy overseeing all DTCC business lines, will be chairman of the new company. Jeff Gooch, executive vice president of Markit, will be the new company's chief executive officer.

In addition to facilitating greater industry adoption of electronic confirmation, the new company will offer automated trade affirmation, trade allocation and novation consent solutions to the market on a cross-product basis. It will initially support both DTCC's and Markit's confirmation platforms.

The new company will be headquartered in London, with a second major centre of operations in New York City and representative offices in Europe and Asia. The combined business will have over 1,100 financial institutions as customers and annual transaction volumes of over 7 million across the OTC interest rate, credit and equity derivative markets.

The DTCC-Markit agreement will become effective following completion of due diligence, regulatory filings and approval by relevant global regulators, including those in the U.K. and U.S. The name of the new company will be announced at a later date.

Publish Date: July 21, 2008
Source URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=209400184

Markit’s Moving Fast Into Derivatives Processing

When we saw Markit Group buy SwapsWire and then BOAT in quick succession, we knew it was time to take a closer look at the aggressive British entrant into the U.S. derivatives processing market.

Founded in 2001, Markit started out as a provider of independent credit derivatives pricing. Its derivatives indices, such as ABX and CDX, have become critical in firms' struggle to accurately determine the value of outstanding derivatives contracts whose underlying assets may be murky. ABX, for instance, tracks the performance of a set of credit default swaps based on U.S. subprime home loans (the derivatives prices themselves are provided by a consortium of 16 investment banks).

It is widely understood that Markit's indices effectively are the only independent means (other than complex mathematical models that cannot take into account factors such as underwriting quality) available to estimate the value of certain types of derivatives. But not everyone is a fan of the indices.

"They're fallacious because they reflect an environment that doesn't exist," contends Dick Bove, analyst at Punk Ziegel. For instance, Markit's CMBX index of commercial mortgage-backed securities recently reflected a 6 percent to 8 percent imputed loss in U.S. commercial real estate when the actual loss was a quarter of 1 percent, according to Bove. "People buying the securities are estimating a far worse disaster than is actually occurring," he says. Accounting rule FAS 157 requires banks to mark certain products down to the implied value of the indices, even if they still are performing well, Bove notes. What firms should do, he believes, is value securities according to how well they actually are performing, rather than based on indices that reflect only what securities buyers think.

Markit concedes that its indices are not perfect. "What an index tells you is where the derivative category is moving; to some extent, that's a symptom rather than a cause," responds Jeff Gooch, EVP and head of trade processing and valuations at Markit. "It helps, because it gives you something to watch. And it does, to a certain extent, reflect some liquidity issues as well as everything else that goes into valuing these products."

Markit also provides a Reference Entity Database (RED) Service -- a set of business entity identifiers to which dealers can refer in order to standardize documentation and avoid mistakes. RED has become so essential to the credit derivatives market that the DTCC has said it will soon start rejecting contracts coming into its Trade Information Warehouse that lack RED coding.

A Thirst for Operations

Markit began its foray into derivatives automation in May 2006, when it acquired White Plains, N.Y.-based Communicator, which offered an OTC derivatives processing platform for trade confirmation, pricing, valuation and trade lifecycle events (the product has been renamed Markit Trade Processing). "We made a very definite decision to get into the processing space," recalls Gooch, who previously ran global OTC derivatives operations at Morgan Stanley.

"The general health of the OTC markets is very dependent on processing efficiency," he continues. "If the industry collectively is going to sort out the problems in derivatives processing, it's going to need to move the bulk of the volume for confirmation in those markets over to electronic platforms."

According to Gooch, across all asset classes, less than half of current derivatives contracts are confirmed electronically. "We think there's going to be a need for a lot more electronic solutions in the processing area," he says.

Last November, Markit announced its agreement to buy SwapsWire, an electronic confirmation network for dealers, interdealer brokers, prime brokers and buy-side firms to exchange trade data and confirm OTC transactions. Gooch believes the move will help electronic adoption by providing some needed vendor consolidation.

"If you look at the current landscape, it's split across a number of vendors -- SwapsWire being one very big player; DTCC with their DerivServ offering being another; and also Markit's Trade Processing Platform. Then there's a number of very small firms, such as TZero. ... That's confusing to people," Gooch explains, adding that system integration difficulties often arise for firms that are connected to multiple vendors.

"We believe there's a need for consolidation in this space -- that the dealer community needs to have some influence and control over what's going on, and Markit is 70 percent owned by major dealers," Gooch adds.

Markit specifically chose SwapsWire, according to Gooch, because the platform is front-office oriented, suiting Markit's natural client base. "It gets the traders involved with resolving the issues on a given trade, and it does so very quickly after execution," he says.

It also helped that SwapsWire was another dealer-owned consortium that, incidentally, shared many of the same dealer owners as Markit. "There's very little geographic or product overlap, which is fantastic in terms of creating synergies," Gooch notes.

Head-to-Head With the DTCC?

The SwapsWire acquisition could bring Markit head-to-head with the Depository Trust & Clearing Corp., which provides clearing, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments, and over-the-counter derivatives. But, Gooch notes, DTCC is owned and controlled by the same banks that own and control Markit, and the two organizations have a shared agenda.

"Our current trade processing platform is the biggest single provider of trades to their platform -- we send them 30,000 to 40,000 trades a month," Gooch relates. Although Markit and DTCC have individual products that compete with one another, he says, that is being worked out.

But while Gooch says Markit and DTCC "have a very active relationship in both directions," he adds, "I'm hoping this deal with SwapsWire doesn't change that."

According to a DTCC spokesperson, "We have a strong, long-standing relationship with Markit, as we do with a host of complementary service providers, and we look forward to continuing to work with them to enhance operating efficiencies and reduce operational risks in the OTC derivatives market. For example, we built our Trade Information Warehouse -- the centralized global repository and post-trade processing infrastructure for servicing credit derivatives contracts -- with an open architecture to enable access by third-party service providers, including Markit and SwapsWire."

The DTCC automates the clearing of credit derivatives trades, of which 90 percent now are handled electronically. But only about 20 percent of equity derivatives and 40 percent of interest rate derivatives trades are electronic -- both types of trades that SwapsWire processes. "We need to try to convince those people that are on paper to move to automation, particularly in equities," Gooch insists. "Otherwise, collectively, there's going to be a problem."

Markit Predictions

So what's Markit's road map for getting there? According to Gooch, major initiatives include growing the company's footprint in the equity space and leveraging its January acquisition of BOAT, a platform for the collection and distribution of European OTC pre- and post-trade information.

Markit also will expand its valuation products. The company is working with six investment banks to develop a platform that will aggregate the banks' and Markit's derivatives pricing data to help institutional investors and fund managers value OTC derivatives and determine portfolio performance. Markit aims to launch the platform, Markit Valuations Manager, in the second half of 2008 with coverage of bonds and derivatives. It later will be expanded to include more banks and all major cash and derivative asset classes, the company has said.

Source URL: http://www.wallstreetandtech.com/showArticle.jhtml?articleID=206904019

Publish Date: 17 March, 2008

Markit, Six Investment Banks To Launch Derivatives Pricing Platform

In the wake of the subprime mortgage crisis and subsequent plummeting in value of mortgage-related derivatives such as CDOs, which in turn has generated a crop of unhappy investors, lawsuits and regulatory concern around improperly sold and priced derivatives, it's no wonder that companies that offer help in determining the value of derivatives contracts are coming out with new products. While many (Numerix, Maplesoft, Quantify) offer pre-built mathematical models for calculating the theoretical value of a derivative now and in the future, Markit, a provider of several derivatives indices, strives to provide actual prices at which certain types of derivatives are currently trading. (Reuters and NYSE Euronext also offer such derivatives valuations.)

Today, Markit announced it is working with six investment banks to develop a new platform that will aggregates the banks' and Markit's derivative pricing data to help institutional investors and fund managers value OTC derivatives and thus more accurately determine portfolio performance. The six banks -- Citi, Credit Suisse, Goldman Sachs, JPMorgan, Merrill Lynch and UBS -- will provide Markit with end-of-day and end-of-month client valuations for OTC derivatives and cash securities. Markit will aggregate this information and offer clients access to a composite of dealer marks for cash securities and counterparty present values for OTC derivative positions, alongside Markit's own independent valuations, developed using industry-standard models.

Markit aims to launch the platform, Markit Valuations Manager, in the second half of 2008 with coverage of bonds and derivatives. The firm says the platform will later be expanded in phases to include more banks and all major cash and derivative asset classes, including structured instruments such as asset-backed and mortgage-backed securities.

Publish Date:21 February, 2008
Source URL:http://www.wallstreetandtech.com/blog/archives/2008/02/markit_six_inve.html

Markit to launch multi-dealer valuations platform

UK market data vendor Markit Group is working with six Wall Street banks to launch a global, multi-bank, cross-asset client valuations platform.

The Markit Valuations Manager platform will provide electronic delivery of daily OTC derivative and consensus cash valuations from Citi, Credit Suisse, Goldman Sachs, JPMorgan, Merrill Lynch and UBS alongside Markit's own independent valuations.

Recent regulatory and accounting changes have increased the importance of reliable, independent valuation sources for funds, says Markit and the new platform will provide the buy side with an "accurate, efficient tool to handle the increased regulatory and accounting burden".

The new system will also enhance the integrity of position information, counterparty marks and third-party valuations, says the vendor.

"Regulators around the world are increasingly focused on the importance of greater transparency, establishing best practice for client valuations, and a trusted, independent process is key," says Jeff Gooch, EVP and head of valuations and trade processing, Markit.

David Lefferts, managing director at Markit, will lead the new initiative.

The platform is expected to launch in the second half of 2008 with core coverage of bonds and derivatives. Markit says the system will subsequently be expanded in phases to include more banks and all major cash and derivative asset classes, including structured instruments such as asset-backed and mortgage-backed securities.

In recent weeks both Nyse Euronext and Reuters have launched valuations services for asset management portfolios of complex and structured financial products.

Source URL:http://www.finextra.com/fullstory.asp?id=18117

Publish date: February 21, 2008

Markit to Acquire Swapswire to Fortify OTC Derivatives Processing Infrastructure

UK data supplier Markit announced an agreement to acquire Swapswire, an electronic trade confirmation network backed by dealers for processing OTC derivatives. Financial terms were not disclosed. The acquisition is expected to close in early 2008.

The deal follows a string of acquisitions by Markit and solidifies Markit’s role as a powerhouse brand position in the derivatives space, comments Brad Bailey, senor analyst at Aite Group, in an email sent to the media. Markit, which is 70 percent owned by major derivatives dealers, provides pricing, a portfolio valuation service, trade processing of OTC derivatives through its acquisition of Communicator last year, and owns indexes. Last month, Markit bought out International Index Company (IIC), owner of the iTraxx Indexes and CDS IndexCo, which owns the CDX indexes.

“Swapswire has helped out a lot on the interest-rate swap confirmation process, “ says Bailey in an interview. “Most of the dealers use them and they’ve been getting a lot of traction on the equity derivatives side as well,” says Bailey. Interestingly, Markit is 70 percent owned by the major dealers derivatives dealer and Swapstream is 95 percent owned by the major derivatives dealers, notes Bailey.

Swapswire is an automated service, owned by 21 dealers, that allows market participants in the OTC derivatives markets to complete trade date confirmations immediately upon execution. Major dealers, inter-dealer brokers, prime brokers and buy-side institutions rely upon on the service.
In a statement, Markit said it plans to combine the Swapswire confirmation capabilities with its trade processing workflow platform to provide the OTC derivatives market with a cross-asset trade processing solution, critical mass and a global network. The enhanced platform will have over 200 buy-side institutions, 50 dealers and 45 inter-dealer brokers.

With the relentless growth in OTC derivatives, which has put pressure on operational infrastructure and raised regulatory concerns, Chip Carver, CEO of Swapswire, stated that the industry faces significant hurdles. By combining Swapswire and Markit together, “We will be able to provide the financial markets with the best possible tools to overcome these challenges,” Carver further stated in the release. The combined business will be co-headed by Jeff Gooch, EVP and head of trade processing and valuations at Markit and Carver.

According to statistics from the Bank for International Settlements (BIS), the OTC derivative markets grew by 25 percent in the first half of 2007, compared to 12 percent in the second half of 2006. Meanwhile, the average number of outstanding confirmations doubled year-on-year, according to Markit’s Quarterly Metrics report, which surveys operational data from the top 18 dealers. Markit says the aggressive volumes have led to mounting backlogs of unconfirmed trades, which attract regulatory scrutiny.

Bailey agrees, “There are still a lot of fundamental problems with derivatives processing such as front-office errors.” This summer’s credit crisis highlighted a lot of problems the market is having in terms of errors, he says.

In a statement, David Lown, EVP at PIMCO, which is a buy-side client of Markit’s comprehensive workflow services said, “the deal will be of immense value to the buy-side community. The integration of SwapsWire’s real-time confirmation tool into the Markit service will give us a cross-asset platform with electronic straight through processing, allowing us to support our growing OTC derivative businesses with greater operational efficiency,” added Lown.

Bailey said the combination of Markit and Swapswire “is a positive step from a buy-side perspective,” because buy-side institutions are confused about resource allocation decisions and which vendors will be around in the future. Also, Markit will eventually provide connectivity into two industry confirmation systems.

Through Communicator’s pipes, Markit provides the connectivity to DerivServ, the DTCC’s matching service for credit derivatives, says Bailey. However, Swapswire has not built connectivity to DerivServ, notes Bailey. Bailey says the deal positions Markit to offer connectivity to both Swapswire and DerivServ. “Their clients will be able to type trades into these two major utilities,” says Bailey.

Now that Swapswire will be part of market, it will make it easier for buy side firms to go to DerivServ or Swapswire because the connectivity will be provided through Markit, says Bailey. If this were to happen, PIMCO, which is a buy-side client of Markit’s workflow service, could do a trade and pump that to DerivServ (via Markit) and now they’ll own Swapswire, he says.

Source URL: http://www.wallstreetandtech.com/blog/archives/2007/12/market_to_acqui.html?cid=nl_wallstreettech_week
Publish date: December 05, 2007