Inter-dealer brokerage firms GFI Group and ICAP have joined forces with The Clearing Corporation of Chicago to develop clearing services for over-the-counter (OTC) derivative instruments, including credit and interest rate derivatives.
Under an agreement signed on Thursday night, GFI and ICAP have acquired minority ownership stakes in The Clearing Corporation as part of the plan. In addition, The Clearing Corporation has agreed to appoint one GFI/ICAP representative to its Board of Directors.
The initiative is the latest of a number of moves designed to increase levels of efficiency and automation in the booming OTC derivatives trading markets. Deriv/SERV, the credit default swap (CDS) confirmation service introduced by the American CSD, the New York-based Depositary Trust and Clearing Corporation (DTCC) is the best-known, but is aimed primarily at clearing back-office backlogs of unconfirmed trades.
ICAP and GFI reckon the establishment of a centralized clearing mechanism will allow market participants to more effectively net offsetting transactions, while simultaneously boosting capacity through the elimination of backlogs and lengthy settlement times in the OTC markets. , “This investment confirms our commitment as leading inter-dealer brokers to developing clearing capabilities and solutions for OTC derivative products,” says Michael Gooch, Chairman and Chief Executive Officer of GFI. “It complements our hybrid electronic platforms, ATS facilities and straight-through-processing capabilities. Ultimately, we believe that centralized clearing will further expand the market for OTC derivative products through added settlement efficiency and reliability.” , Michael Spencer, Group Chief Executive Officer of ICAP, describes the introduction of independent clearing facilities as an “important step” in the continuing growth of the global OTC markets. “The membership of The Clearing Corporation includes some of the most active participants and customers in these markets,” he adds. “Together, we will support The Clearing Corporation’s mandate to develop clearing capabilities for new financial derivatives products that will benefit all market participants.” , Michael C. Dawley, Chairman of The Clearing Corporation says he believes the investment by GFI and ICAP “demonstrates the value our independent and flexible clearing model brings to the marketplace. We look forward to working with GFI and ICAP and welcome them as additional strategic partners.”