Markit Buyside Working Group Minutes

These are the key points raised during the session:-

On the Novations process:

• There is an ongoing search for unity across the industry on the best solution for Novations which explains some of the buyside reluctance to commit to a platform.
• Novation fees should be 'baked' into a solution so that they can be established earlier than currently available. Jeff Gooch, Markit’s Executive Vice President of Trade Processing, raised the prospect of a standardised fee calculation that was industry accepted and made available to all Novation tools. This was met with general approval.
• Interoperability could be a solution to the Novation issue which would do away with the need to pick a specific solution - all vendors would then connect to DTCC, with DTCC being the one constant.
• Concerns were raised around timelines for electronic Novations. Given that the supposed deadline is the end of 2008, not all dealers connect to all Novation tools which could leave gaps in coverage.
• Bloomberg's entry into the Novations space was very interesting to the attendees given the wide use of CDSW for fee calculation.

In general, it was agreed that there is no consensus on a preferred platform so alternatives to being forced to choose would likely prevail. T-zero was used by six participants in the current CDS Novation poll we took, with Markit Wire featuring equally as strong for Rates.  A question was raised about where the DTCC Novation tool would sit in the bank i.e front office or middle/back office, and how would that affect the timeliness of consent.

On Equity Derivative Affirmation/Confirmation turnaround timing:

• A backlog of outstanding confirms in multiple instruments despite MCA's in place where available.
• Questions were raised about the FED targets, taking into account the disputed confirms. More transparency is required around the Fed target definitions.
• There are protracted legal discussions because there are non-standard MCA terms that the buyside wants.
• There is a very strong desire for the buyside collectively to go to the dealers with consensus of main standard terms to include in an MCA and for all equity desks to use them in a bank, as opposed to having to negotiate with individual desks. The preference is for the clients to have the same language as the interdealer language.
• One current workaround is intermediation, which is an expensive alternative but works for the larger-volume players. It was felt that this was not the optimal solution.
• Greater dealer adoption of Markit Wire for inflation swaps and zero coupon - raised by Legal and General, Pru M&G & CQS.
• Broker performance measurements - this was not something we could help with but there was a feeling that some banks were more flexible than others.
• Support for CFD's - Coretexa and Omgeo were noted as platforms that could provide a solution (but not the preferred solution). The group asked about a ‘Markit’ solution when a definitive requirement has been established between both dealers and buyside.

25 June 2008