Or at least, the world of electronic trade processing.
The announcement hit inboxes this morning, although there’d been a whiff of a deal in the making for weeks. Two identical press releases, one each from Markit and the Depositary Trust & Clearing Corp: DTCC AND MARKIT TO FORM STRATEGIC OTC DERIVATIVES PARTNERSHIP.
(ALL CAPS MEANS IT’S REALLY IMPORTANT.)
Translation: the two firms are starting a joint venture to confirm and settle electronically trades in the markets for credit, equity, interest rate and commodity derivatives.
“We’re tidying up the infrastructure [of OTC derivative trades],” Markit’s executive vice president Jeff Gooch said a press conference this morning. “We’re taking people who are on paper and making them electronic.”
The market for such OTC derivatives is worth about $5,960bn, according to the Bank for International Settlements, and it’s growing at a rapid clip.
And there’s also room for growth in terms of electronic processing. As many as 80 per cent of trades in the equity derivatives market are processed as faxes between counterparties, Gooch said, while in the interest rate market, the figure is around 50 per cent.
The new venture – as yet unnamed – will be jointly owned by the two companies, with Gooch at the helm. The joint venture will also not include either Markit’s data and valuation services or DTCC’s trade information warehouse.
Darkit The company will be governed by an 11-member board comprised of seven representatives from the banks which own Markit and DTCC and four managers from the two parent companies.
Markit is owned by 16 investment banks, three fund managers and company employees, according to a company fact sheet, correct as of April. DTCC is similarly owned by its member firms, which include broker/dealers, investment banks and mutual funds, and there is significant overlap between the owners of the two companies.
Pending regulatory approval, Darkit the new venture will start operating toward the end of this year and will have its headquarters in London.
Such approval shouldn’t be too hard to come by, since regulators have been calling for improved trade processing (read: electronic rather than paper) for quite some time now.