ICAP plc (IAP.L), the world’s premier interdealer broker, will launch an electronic market for trading Euro interest rate swaps (Euro IRS) with market maker support, bringing increased transparency and greater efficiency, as well as lower transaction costs to the world’s largest OTC derivative market. This initiative will make a substantial contribution towards further reducing operational and systemic risks in trading OTC derivatives.
ICAP’s electronic interest rate swap platform will be live on 6 September 2010 and will take ICAP’s established voice liquidity and combine it with a proven electronic platform to create a single liquidity pool in a wide range of Euro IRS instruments out to 30 years maturity. The platform will be open to market making banks that have access to a clearing house for interest rate derivatives. Other banks will continue to have access via ICAP’s voice brokers.
Barclays Capital, Deutsche Bank and J.P. Morgan have each agreed to support the platform by providing streaming prices, alongside a number of other banks.
Michael Spencer, Chief Executive of ICAP, said, “OTC dealers have been waiting for an effective electronic interdealer trading system for swaps for some time. This is a major turning point for the largest and most important interest rate market in Europe*; bringing greater automation, increased transparency and lower transaction costs. All transactions will be captured and recorded electronically although we expect the most liquid and standardised products to move progressively electronic while the less liquid products remain mostly voice.”
The platform is regulated as a multilateral trading facility (MTF) by the FSA and is subject to the European Union’s Markets in Financial Instruments Directive (MIFID). It provides full audit ability and transparency for regulators.
Harry Harrison, head of Rates Trading at Barclays Capital, commented, “As the industry adopts central clearing for OTC derivatives and electronic trading expands, it becomes increasingly important for the interdealer market to adapt to these trends too. This initiative is therefore a key development.
Jason Cohen, head of Euro Swaps at Citibank, "Amid increasing volumes of electronically executed swaps, initiatives such this ICAP platform are important for the interdealer market. The platform promises to improve transparency, efficiency and lower execution costs as the market moves towards the adoption of a central clearing system."
Michele Faissola, head of Rates and Commodities at Deutsche Bank, said, “Markets are changing to reflect regulators’ and participants’ desire for lower operational and systemic risk while maintaining liquidity and the ability to create bespoke transactions. This platform will ensure that interest rate swaps trading delivers those objectives as efficiently as possible.”
Chris Willcox, global head of Rates at J.P. Morgan commented, “As market participants, we are always interested in finding ways to improve trading efficiency. Interest rate swaps trading is a large, diverse and complex activity. The use of ICAP’s technology by wholesale interbank participants trading Euro interest swaps, combined with existing industry infrastructure, will help to mitigate ongoing risks and improve efficiency.”
Steve Ashley, global head of Rates at Nomura said, “The provision of electronic swap liquidity on the ICAP platform is a great example of how the market can support a trading venue that promotes liquidity and transparent execution, interoperability with multiple clearing venues, in order to further support interest rate derivatives.”
Simon Wilson, head of Euro Interest Rate Swaps at Royal Bank of Scotland, commented, “combining voice and electronic liquidity gives us the best of both worlds; this is a natural evolution of the markets. The eurozone’s interest rate traders depend on a deep and liquid wholesale swap market; it seems to be the right time for ICAP to extend the use of technology in this market.”
“Improving the efficiency of the Euro IRS business is important” said Christophe Coutte from Société Générale Corporate & Investment Banking, “we believe that electronic trading combined with voice broking can help to deliver that improvement.“
* In the Bank of International Settlements most recent survey, in December 2009, the amounts outstanding of all different OTC single-currency interest rate derivatives and all different counterparties in Euro was USD 176 trillion.
