Blog: The OTC Derivatives Ecosystem is Rapidly Evolving Inside Equinix

Flexible Environment Helps Mitigate Technology Risks and Manage Connectivity Costs

The regulation-driven move to electronic trading venues in the Over the Counter (OTC) derivatives market is taking shape inside Equinix. The key components of the market structure – Swap Execution Facilities, Central Counter Party Clearing, Swap Data Repositories and others – are capitalizing on the same proven infrastructure strategy developed by the architects of electronic trading in other asset classes, such as equities, foreign exchange, futures and options.

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The OTC Ecosystem inside Equinix

• 16 of 19 Swap Execution Facilities have located key infrastructure inside Equinix (Matching Engines or Access Nodes)
• 3 primary Swap Data Repositories have located key infrastructure inside Equinix globally
• Equinix campuses in Singapore, Tokyo, Hong Kong, New York and Chicago have become primary platform locations for swap data repositories
• Over 50% of OTC Access Nodes have located with Equinix in EMEA and Asia
• Over 50% of the estimated solution providers for OTC have located in an Equinix IBX
• 100% of registered US CCPs are accessible via access nodes or primary deployments
• 3 DCMs (Designated Contract Markets) dedicated to futurization of swaps and Central Limit Order Book formation have located their matching engines within Equinix, Inc.

By deploying critical infrastructure in well-connected, service-neutral hubs that already house current and potential customers, firms like Markitserv, GFI, ICAP, TeraExchange and others are effectively de-risking the development of the nascent OTC ecosystem by piggybacking on the benefits of the existing, mature Financial Services ecosystem. The density of networks, service providers, buy-side, sell-side and other firms creates an optimal Wide Area Network (WAN) hub and allows for quick and easy connectivity to the Local Area Network (LAN) of critical endpoints.

Local connectivity to such a wide range of potential endpoints offers badly needed flexibility to firms who must comply with continuously evolving regulation, as the industry sorts through complex new processes and systems. “The roll-out of Dodd-Frank, EMIR and similar legislation around the world has not come without risk. From a technology perspective, being able to tap into existing business ecosystems with a high concentration of key market players –including service providers and connectivity providers – has given firms the ability to remain agile throughout the entire process as this market becomes more electronic globally”, said Barry W. Smith, director of Exchanges at Equinix.

Equinix has also partnered with industry advisory, Aite Group, on a series of three white papers that explore key issues and trends in the OTC space. “Big changes are afoot in the clearing universe. Current dominant players in the OTC derivatives clearing market are likely to come under pressure to retain their market share as a result of infrastructure changes resulting from EMIR. Domestic markets such as Chile and China that have not previously featured such services have seen moves by local players to begin down the road toward supporting OTC derivatives clearing. In the meantime, the rest of the world can look to the U.S. market as a precedent for how the clearing space is likely to be altered by regulatory changes,” said Virginie O’Shea, senior analyst at Aite Group.

̶ Stewart Orrell, Managing Director, Global Capital Markets at Equinix