The Futures Industry Association has appointed London based Markit Group to provide a global electronic give-up agreement system by which executing brokers, clearing brokers and their customers can execute give-up agreements online. The electronic platform is expected to launch in February 2007.
A give-up occurs when a futures market participant uses one broker to execute a trade and another to clear it, requiring the executing broker to “give up” the trade to the clearing broker. It is estimated that more than 15,000 such agreements are executed annually, involving nearly all futures commission merchants that handle customer business.
“FIA EGUS will significantly reduce the cost and the time it takes to establish give-up agreements for both customers and brokers,” says FIA Chairman Richard Berliand, managing director, futures and options, at JP Morgan. “The feedback from both the industry and the customers has been extremely positive.”
Fifteen firms have agreed to be “supporting FCMs,” pledging to fund and use the system. They are Banc of America Securities, Barclays Capital, Bear Stearns, Calyon Financial, Citigroup, Credit Suisse, Deutsche Bank, Fimat Group, Goldman Sachs, JP Morgan, Lehman Brothers, Man Financial, Merrill Lynch, Morgan Stanley and UBS.
Markit’s trade processing platform will automate the give-up process, enabling brokers to track agreements, rate changes and payments more efficiently. Markit says an important benefit will be the use of electronic signatures instead of paper-based signatures, improving the processing of give-ups and reducing execution costs significantly.
Data will be delivered electronically to exchanges, clearing houses and customer systems, in an effort to streamline execution brokerage practices. The platform will be open to all executing and clearing brokers, regardless of FIA membership.
The FIA developed the “uniform brokerage execution services (give-up) agreement” in 1995. Although paper agreements will continue to be used, the new system is expected to provide a faster service.