Icap to Introduce E-Trading for Interest Rate Swaps
September 1, 2010
The world’s largest interdealer-broker Icap has laid claim to introducing the world’s first electronic market for interest rate swaps.
As of Sept. 6, Icap will launch the platform for euro-denominated interest rate swaps out to thirty years maturity which are bought and sold between dealers. The platform is supported by Barclays Capital, Deutsche Bank and JP Morgan, which as market makers have agreed to provide streaming prices, says Icap.
“All transactions will be captured and recorded electronically although we expect the most liquid and standardized products to move progressively electronic, while the less liquid products remain mostly voice,” says Michael Spencer, chief executive of Icap in London.
Interest-rate swaps – typically traded over the phone – are contracts which exchange a fixed interest rate for a floating interest rate. Accounting for about three-quarters of the world’s OTC derivatives market, interest rate swaps are often used by banks to hedge against inst the impact of changes in interest rates.
The U.S. financial reform bill requires many OTC derivatives to be raded on exchanges or other so-called electronic platforms called “swap execution facilities.” The legislation also says that “standardized” OTC contracts should be processed through clearinghouses.
Those organizations stand in between two counterparties to the trade and guarantee that it is completed if one of the two counterparties defaults or goes bust.
Icap says its new platform will be open to banks and brokerage firms that have access to a clearinghouse. That is likely to be LCH.Clearnet’s SwapsClear service which is estimated to clear about sixty percent of the world’s dealer-to-dealer interest rate swaps transactions.
