OCC has signed an agreement establishing MarkitSERV as a trade source and middleware provider for over-the-counter (OTC) equity derivative trades to be cleared by OCC.
OTC equity derivative trades that are bilaterally negotiated and entered into MarkitSERV's post-trade processing platform for affirmation/confirmation will have the option of being seamlessly routed to OCC for central counterparty clearing services. Trades sent to OCC for clearing will follow OCC's existing clearing, settlement and risk management processes.
OCC will guarantee and novate trades, severing the link between the original parties to the trade and inserting itself as the buyer to every seller and the seller to every buyer. Through this process of novation, OCC will guarantee performance of OTC equity derivative trades between clearing members, reducing counterparty credit risk for market participants. Adding a cleared solution for the OTC equity derivative trades will bring an unprecedented level of efficiency and risk reduction to the marketplace.
Pending regulatory approval, OCC expects to launch its OTC clearing solution in the 4th quarter, 2011.
"MarkitSERV looks forward to working with OCC and the industry to leverage existing infrastructure and provide the highest levels of operational efficiency, connectivity and legal certainty for clearing OTC equity derivatives transactions," said Jeff Gooch, CEO of MarkitSERV.
"We are very pleased to work with MarkitSERV in extending the benefits of central counterparty clearing to the OTC equity derivatives market," said Michael E. Cahill, OCC President and COO. "This arrangement utilizes the existing affirmation/confirmation process at MarkitSERV and adds a clearing solution that will mitigate counterparty and systemic risk."
