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Industry Collaboration Sets Stage for September MDX Trading Debut
The MDX Working Group, composed of dealers, ICE, and Vista held its initial two meetings this month. Issues surrounding trade processing, payment timing and third-party vendor engagement were discussed, and a series of recommendations were adopted based on feedback from market participants. Additionally, the Working Group has reached consensus around a September trading launch.
In this article, we review the recommendations and highlight vendor participation. These will be critical for preparing to trade and invest in MDX swaps.
Trading Protocol and Trade Processing
MDX Swaps will be traded both electronically and by voice. Indicative Bids and Offers will be displayed on electronic venues and messaging runs. A request for quote (RFQ) protocol will then be used for actual trades. Once completed, transactions will be sent to ICE Link for affirmation and allocations. ICE Link has begun enhancing its existing platform to support MDX swaps. ICE link will then send trades to TradeServ (OSTTRA) for legal confirmation. Confirmed trades will be transmitted to DTCC for trade reporting and retention in its Global Trade Repository (GTR). Vista is working closely with ICE, OSTTRA, and DTCC to ensure their systems will accommodate MDX swaps. These firms have agreed to join the Working Group as needed.
Trade documents will utilize standard ISDA documentation. ISDA is currently reviewing the MDX Standard Terms Supplement (STS) and associated transaction documents (see a draft version of the STS). We encourage you to review it and provide any comments.
Swap Payments and Identifier Changes
The MDX Working Group and key processing vendors (above) recommended that bilateral MDX swaps have synchronized fixed and floating payment dates. Previously, MDX swaps provided for quarterly fixed coupon payments and monthly floating Credit Event payments. This will reduce the number of payments annually from 16 to 12, streamline processing, and allow the two amounts owed to be netted each month into a single cash payment. The monthly frequency is now reflected in all the MDX documentation on our website and will be incorporated in associated models.
MDX Index & Swap Identification will change based on recommendations from the Working Group. The Series published thus far (i.e. Series 1 to 7) will be relabeled to alphabetical sequencing (i.e. Series A to G) to distinguish them from the first Series to trade in September (i.e. Series 1, which formerly would have been Series 8). Once released in September, Series 1 (MDX.GN.1) will be the only index referenced in five-year swaps for the first six months. Additionally, the Working Group has preliminarily agreed that MDX swaps will be identified using UPIs.
Market Infrastucture Activity
MDX Data and Analytics development continues to progress. ICE Data has released the new MDX.GN Series G, and all Index Data can be found here. ICE has completed its development of the MDX price converter, and the Working Group has agreed to use the ISDA-IHS Markit RFR Curve within the model. Bloomberg continues to move ahead with its MDX applications, including DES and CDSW pages. Other enhancements and applications will continue to roll in over the next few months.
INTEX has incorporated MDX data and enhanced its modeling capabilities for MDX indices and swaps. The Intex model for MDX.GN is now available with historical performance (i.e. seasoned all-assets mode), which can be accessed using the ticker MDXGN5 in the US RMBS deal library. Additional Series will be released this spring.
Order Management Systems (OMS) and Collateral Agents need to be contacted by market participants to let them know of your interest in MDX. Vista is ready to support your engagement with your suppliers; however, their responsiveness will be tied directly to requests from you. We ask you to let us know who you use for these activities so that we can help get ahead of this need. Full automated connectivity between buy-side support vendors and the core trade processing vendors (above) is anticipated to take some time and evolve in stages.
It was great to see many of you at SFVegas — your continuing enthusiasm about MDX is very much appreciated. In the coming months, we will be reaching out to you individually to field questions and get your feedback. In the meantime, please look for our newsletters, as we intend to share updates on our progress towards launch with our dealer partners and ICE.