May 22, 2018

OTC Derivatives Central Infrastructure for Sale

IHS Markit puts MarkitServ up for sale, the centre of CDS and IRS confirmation for almost the entire OTC market.

For those with a long memory, in the beginning was SwapsWire, a new approach to confirming Rate Swap trades moving away from the SWIFT and MT360 message towards FpML and single sided affirmation. Not long afterwards was the DTCC Trade Information Warehouse (TIW) which provides a confirmation to settlement platform for CDS trades.  Then Markit became the owner of SwapsWire and DSMatch (but not the TIW), and formed MarkitSSERV to combine what are key parts of the OTC derivatives market infrastructure into one business. 

Now the time has come for IHS Markit to 'divest' or sell the MarkitServ business, which has been reported in multiple places in the past few days. Perhaps the value of that business fits better now with some other host, here's some ideas:

  • LSEG/LCH who dominate in the Interest Rates space could own MarkitWire (nee SwapsWire) which is the direct route into SwapClear and SwapAgent. Having this combo would join up the affirmation / confirmation steps with the downstream processing, to align with the TIW end-to-end model. Owning DSMatch would connect nicely into the LCH CDS Clearing business and give them a lever to compete strongly with ICE Clear.
  • ICE who dominate in CDS could own DSMatch which is a direct route into CDS clearing, giving yet more alignment and STP for the credit market. This would give them a view into the Rates trade flow and enable them to consider new services for that market.
  • NEX, now part of CME, could expand horizontally by looking to provide an integrated confirmation, affirmation and routing service across as many asset classes as possible. This would give CME direct insight into the majority of OTC trade flow by ticket volume and potentially ways to further expand their footprint. CME also has an IRS clearing business that MarkitWire would fit nicely with.
  • What about DTCC? They owned DSMatch (the confirmation component) originally and competed with SwapsWire for a while, maybe they should take back MarkitServ as a 'neutral' owner on behalf of the industry. 
  • And Eurex, continously pushing to win business from SwapClear, this would make a great addition and open a new line of business for the Deutsche Borse group.

Given those players, maybe this is why IHS Markit want to sell, the value of the MarkitServ business could be high to any of the above. Bidding may be fierce, lets see how this plays out. Let me know who you think is the natural home of the majority of OTC trade flow confirmations in the comments?

Clarification: DTCC still own the downstream parts of TIW, but the upstream component DSMatch is within MarkitServ. Makes bringing it back to DTCC seem a good match for many reasons. Thanks to Mihir.

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