BATS CHI-X Europe and ICAP launch exchange for trading and clearing physical transactions

BATS Chi-X Europe (BATS), Europe’s largest stock exchange, and British multinational markets operator ICAP plc (LON:IAP) have today announced new services which, when combined, will enable market participants to trade fully cleared equity index Exchange for Physical (EFP) transactions anonymously.

An EFP involves the simultaneous exchange between two parties of a futures position for a position in the underlying asset. EFPs are currently traded over-the-counter (OTC) with the futures leg of the transaction being exchange-traded and cleared, and the cash/physical leg settled on an OTC, bilateral basis.

Due to the evolving regulatory landscape, market participants in all asset classes are working to reduce counterparty risk, which can be a particular issue with bilaterally OTC trades. To enable firms to address these issues, BATS and ICAP have developed services that, taken together, provide the first fully cleared equities EFP trading solution.

As part of this solution, BATS has enhanced BXTR, its market-leading trade reporting facility, by expanding its Exchange Trade Reporting (ETR) services to enable the cash basket of the EFP to be traded on-exchange. ICAP will be the first broker to use the enhanced service, which is available to all participants, with transactions facilitated via ICAP Fusion – the firm’s e-commerce portal for trading venues.

ICAP will make available fully cleared equity index EFPs on its ISL MTF and will also facilitate traditional voice broking in these products via its Global Broking division. ICAP’s unique position in the market allows the company to offer fully cleared EFPs across the major European Indices, a world first, demonstrating ICAP’s ability to provide its wholesale clients with streamlined and flexible technological trading solutions.

Mark Hemsley, CEO of BATS Chi-X Europe said: “The versatility of BXTR has been further demonstrated with this new EFP service, which will allow for more effective balance sheet management, and for operational workflows to be standardised. By settling more trades with CCPs and netting settlements, counterparty risk and costs across the European market will be reduced.”

Garry Stewart, Deputy CEO of EMEA Global Broking at ICAP said: “As a leading player in execution services ICAP Global Broking is committed to developing innovative products for our customers particularly around hybrid and electronic trading offerings. ICAP Fusion provides a customisable, single point of access which will greatly enhance the operational efficiencies of clients. We are pleased to be working with BATS and our clients to refine and improve the trading of this market.”

Once trades are accepted by BATS, they will be published in real time as on-exchange, off-book trades. All trades will be codified using Market Model Typology (MMT). BATS was the first exchange in Europe to introduce the standard, now under the supervision of FIX Trading Community, and its usage is now mandatory across all equity trades that touch BATS systems. In February, notional value either traded on BATS or reported to BXTR totalled €616.1bn.

For the official announcement from ICAP, click here.

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