BATS Chi-X Europe, an exchange provider, has linked up with ICAP, a broker, to provide anonymous clearing for equity-based exchange-for-physical (EFP) contracts.
EFP transactions involve the simultaneous exchange between two parties, one with a futures position, and the other with the underlying assets.
Currently, EFPs are traded over-the-counter (OTC) with the futures part of the transaction traded on an exchange and cleared, and the physical part settled on an OTC bilateral basis.
The development is due to the changing regulatory environment where market participants are looking to reduce counterparty risk. This is particularly true of OTC trades and so BATS and ICAP have developed a fully cleared equities EFP trading solution.
BATS has expanded its exchange trade reporting services to enable the cash part of the EFP to be traded on-exchange. ICAP will be the first broker to use the new service, via its e-commerce portal, ICAP Fusion.
“By settling more trades with CCPs [central counterparties] and netting settlements, counterparty risk and costs across the European market will be reduced,” says Mark Hemsley, chief executive officer of BATS Chi-X Europe.
Last month, the notional value traded on BATS totaled €755.3 billion.
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