Icap will go live with an electronic market for trading euro interest rate swaps with market maker support on 6 September, bringing greater transparency, efficiency and lower transaction costs to the largest over-the-counter derivative market.
“The initiative will make a substantial contribution towards further reducing operational and systemic risks in trading OTC derivatives,” Icap, the world’s largest interdealer broker, said in a statement today.
The platform will take Icap’s established voice liquidity and combine it with an 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 JP Morgan are among a number of banks that have agreed to support the platform by providing streaming prices.
Michael Spencer, chief executive of Icap says, “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 will be regulated as a multilateral trading facility by the UK Financial Services Authority and is subject to the European Union’s Markets in Financial Instruments Directive (MIFID). It provides full audit ability and transparency for regulators, Icap said.
Harry Harrison, head of rates trading at Barclays Capital, says, “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.”
Michele Faissola, head of rates and commodities at Deutsche Bank, adds, “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.”