Six major investment banks have launched a voluntary initiative to improve post-trade transparency in the European over-the-counter (OTC) equity markets. Citi, Credit Suisse, Deutsche Bank, JP Morgan Cazenove, Morgan Stanley and UBS have voluntarily started to report the volumes of cash equity trades crossed in their automated crossing systems via a service provided by Markit. Separately, Spain's Bolsa Y Mercados Españoles (BME) exchange has delayed the launch of a planned OTC trade repository until the end of the year but has won backing from Clearstream Banking for the venture.

The European Commission and other national regulators around the globe are increasingly targeting the OTC markets following the credit crunch as the lack of transparency is seen as a strategic weakness in the international financial system. Crossing networks have been perceived as controversial as they give a low cost alternative to trading on external venues for brokers, causing stock exchanges to complain long and hard about the adverse impact on their volumes and business. The counter argument, of course, is that a long standing activity has simply been automated but it is likely that large numbers of trades have been crossed without regulatory supervision. Assessing the volume of crossed trades, which the new Markit service will do, will enable regulators to decide if the size of the market demands greater reporting rules. The omission of Goldman Sachs Sigma X network from the voluntary scheme though is pertinent as large flows cross here, so how accurate a market-wide picture can be obtained is up for debate.

In terms of its operation, the new Markit service will collate data at the end of each trading day from each participating bank, conduct validation checks on the information, and publish the aggregated trading volumes the following afternoon. The data will be freely available on www.markit.com.

The data will cover automated crosses only, including trades matched on systems such as Citi Match, CS Crossfinder, DBA, JPM-X, MSPool and UBS PIN. In line with the MiFID rules on reportable trades, it will include trading between clients of the executing broker and trading between brokers and their clients. Volumes will be published on an aggregated basis and will be broken down by country. During testing the daily percentage of trades reported in this way has ranged from 0.62% to 1.02% of total European trading.

"This initiative is designed to bring further transparency into this area of OTC trading by providing verified data where previously there has been only speculation, and by giving a clear indication of the actual levels of trading in crossing engines," says John Serocold of the Association for Financial Markets in Europe.

"As a further step in support of making more information freely available to all market participants, it should provide useful data for the MiFID Review being undertaken this year."

Commenting on the launch, Sophia Kandylaki, director of equities at Markit, said: "Markit is pleased to facilitate this initiative which will give participants insight into how much is traded through banks' crossing systems on a daily basis. This information will bring greater transparency to the European equity markets."

• In other news, Spain's Bolsa Y Mercados Españoles (BME) has delayed the launch of a planned OTC trade repository by six months until the end of the year. More encouragingly though, the project's cross-border ambitions received a boost, however, when Clearstream Banking announced its support for the venture.

The Spanish stock exchange firm initially intended to open its repository in Q2 in keeping with the European Commission's forthcoming regulations, which aim to achieve greater operational control and transparency in OTC derivatives. It still intends to meet these stipulations but the registry won't now open until Q4 2010.

Customer testing and development work is though now underway. During the first phase, only interest rate derivatives - IRS, FRA, Cap and Floor - will be available. The next phase of development encompasses a broader scope of OTC derivatives, covering underlying assets such as fixed income, equities, currencies, commodities and other instruments.

Despite the delay, Jesús Benito, CEO of BME's Iberclear, thinks that Clearstream's backing for the venture is "indicative of the international appeal" of the repository and is hopeful of success.

Philip Brown, head of relationship management at Clearstream Banking, agrees, stating: "Customers are now looking for a European solution that will deliver their upcoming obligations on transparent registration of OTC derivatives. The joint know-how and existing market coverage of our combined organisations will allow us to rollout the service quickly and expand its offering to cover all types of OTC derivatives."

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