Technology news

MTS moves into China

MTS Group, the European bond market platform provider, is set to develop a government bond trading platform in China, after signing a letter of intent with Chinese authorities.

The letter between MTS and the China Foreign Exchange Trade System (CFETS), the subsidiary of the Chinese central bank which runs the inter-dealer wholesale government bond market, binds the two to cooperate in the development of an electronic platform in China. This will mean finding a way to accommodate China's domestic requirements within the existing MTS European Bond Market model.

This is still a "preliminary stage" in the development of a concrete platform, says a spokesperson for MTS, who adds: "We hope it will lead to a formal venture."

CFETS recently entered into a similar agreement with Reuters for the UK trading systems vendor to provide China with an inter-dealer foreign exchange platform. The platform, which was commissioned in 2004 and launched last May, is seen as a huge success by the FX community. Although CFETS will not release its trading volumes, a measure of its advancement can be seen in the reported plans to expand the platform outside plain spot FX into derivatives such as FX forwards.

The mooted bond platform, however, is likely to take a little longer to reach maturity if the example of Israel is anything to go by. The MTS-built government bond platform for Israel is planned to launch by the middle of this year - some four years after the process was initiated.

Buy side pressures dealers for better ops - survey

As the sell-side community strives to clear up operational backlogs in credit derivatives, asset managers and other clients are placing growing emphasis on back-office capabilities when selecting dealers for fixed-income trades, a new study reveals.

"With pricing becoming more consistent, asset managers and other institutional investors are increasingly able to direct business to those dealers that provide value away from the sales desk," says consultant Tim Sangston at Greenwich Associates, which carried out the survey in conjunction with industry association, the Asset Managers Forum. "In this environment, operational capabilities and other qualitative measures are taking on a much higher profile."

In the survey, half of US asset managers polled said operational resources already play some role in deciding whether to work with a given bank, while nearly 60% of respondents said back-office criteria are becoming more important in their selection of dealers.

As part of ongoing initiatives to address shortcomings in sell-side back-office performance, many survey respondents noted that they have begun regular meetings with their dealers to discuss such topics as level of service, standards and escalation procedures.

The survey shows that asset managers place the most value on dealers that can provide efficient post-execution processes, client service, technology and commitment to building strategic partnerships with their operations counterparts on the buy side.

Julie Warren, managing director at New York Life Investment Management and chairperson of the Asset Managers Forum, says: "While best execution will always be the key driver in counterparty selection, the role of operations in effectively managing post-execution activities will play an increasingly important role."

DTCC sets up central storage warehouse for trade data

The Depository Trust & Clearing Corporation (DTCC) is developing a central trade information warehouse and support infrastructure in an attempt to standardise how credit derivative trades are processed across the industry. The New York-based clearing and settlement company hopes the first phase of the new technology will be ready by the middle of 2006, and expects it to be extended to other over-the-counter (OTC) derivative products at a later date.

The warehouse will comprise a comprehensive database containing the 'golden copy' of each trade: in other words, the DTCC hopes it will be relied upon as an independent third party that will hold the accepted details of credit default swap contracts. Currently, each dealer has what it believes to be the 'golden copy' of any given trade through its proprietary systems.

"It's a way of ensuring dealers' and other participants' books and records are aligned without having to go through, for example, repeated reconciliations or cashflow breaks," says Bill Hodgson, head of business development for the DTCC in London.

The so-called 'downstream' processing will involve the maintenance of the current status of each contract - after taking account of actions such as full and partial assignments and terminations - and the calculation and bilateral netting of cashflows in each contract.

The initiative follows increased regulatory concern in the US and Europe last year over the adequacy of credit derivatives confirmation processes. The company hopes the new infrastructure will automate the multiple manual and bilateral processes that currently take place through the contract life cycle. It says the infrastructure will help firms ensure accurate balance sheet information, promote correct and complete payments, and manage credit events more smoothly.

"Our long-term shared vision with the industry is to focus on how to manage post-trade processing in the OTC derivatives market space," says Robert McGrail, DTCC executive managing director for domestic and international core services. "Beginning with credit derivatives, our goal is to create at the DTCC a global, extendable and open platform to reduce the risk and cost associated with OTC derivatives."

The DTCC has been working with all the major dealers to develop the trade warehouse and support infrastructure, which will be overseen by its senior operations group, a unit established by the OTC derivatives operations and planning committee of the company's board.

With further industry consultation, the company plans to add more downstream processes to the support infrastructure at a later stage, including the possibility of enabling credit event processing, says Hodgson. This would allow market participants to more quickly pinpoint the number of trades affected by a given credit event than is currently possible.

Other OTC derivatives, including rates, equities, foreign exchange and commodities, may be added to the technology at a later stage.

The DTCC has come under the spotlight recently as a potential solution to the ongoing problem of delays in settling credit derivatives contracts. The Federal Reserve explicitly commended the firm as an important tool in resolving the issue when it discussed the derivatives backlog with major dealers in the market in January.

Following a recent meeting to update the situation, the Fed noted that "virtually all active clients" (those executing five DTCC-eligible trades a week or more) are now using an "industry-accepted electronic confirmation platform".

Bloomberg joins banks in interest rate derivatives e-platform

ix international banks and financial information provider Bloomberg have launched a joint venture company to operate an online interest rate derivatives trading platform. The six banks - ABN Amro, Barclays Capital, Calyon, HSBC, JPMorgan and Societe Generale - and Bloomberg will all own equal shares in the still-unnamed company. The company will use software based on Bloomberg's existing SwapTrader online trading platform.

KDP broadens chart function

Independent high-yield research firm KDP Investment Advisors has added a new charting feature to its website. Users may now create custom charts of up to three securities at once from KDP's high-yield securities pricing database. Daily, weekly and monthly price and spread histories are available on all issues covered by KDP, covering a universe of approximately 300 high-yield credits.

Siam signs with Sierra

Siam Commercial Bank has installed the Sierra Treasury Solution to manage straight-through processing for fixed income, FX and money markets. Using the system, transactions flow automatically through verification, confirmation and payment.

S&P releases covered bond system

Standard & Poor's covered bond analytical modelling tool, which its analysts use to evaluate the credit quality of covered bonds, is now publicly available. Covered Bond Monitor covers all European markets, such as Pfandbriefe in Germany, lettres de gage in Luxembourg, obligations foncieres in France and realobligationer in Denmark. S&P says the European covered bond market has seen impressive growth in the past few years to stand at EUR1.6 trillion currently.

ICCREA Banca's new trading tool

Italian banking group ICCREA Banca has gone live with Misys Banking Systems' front-to-back office trading tool Misys Summit for bonds, equities, FX, money markets and exotic derivatives. The bank has also taken Summit's Accounting module, which helps banks comply with the IAS39 regulation for hedge accounting.