State Street Launches Swap Trading Platform
Leveraging its strength in the asset servicing market, State Street says it has launched a new swap execution facility that can go against some of the established sell-side electronic trading platforms.
State Street is calling SwapEx, as the first step in the "end-to-end solution that reduces operational risk through the automation of the many stages of derivaives clearing." Those stages are execution, clearing, collateral management, managing cash and securities flows between middle and back offices, transaction cost and risk reporting, valuations and reconciliation of positions."
Since State Street already offers custody, accounting, collateral management, valuations and risk analytics for derivatives and other products, expanding into the trade execution arena won't be much of a stretch. And its target market is similar: buy-side firms wanting to expand their investment horizons to the swap market without the need to build full trade lifecycle capabilities on their own.
State Street's core competencies as a custodian combined with the advanced technology of our eExchange platforms, including SwapEx, make the expansion of our derivatives solution to include swap execution facility a natural extension of our business," says Cliffor Lewis, executive vice president and head of eExchange business at State Street, which expanded its derivatives clearing operations last year to include swaps.
State Street will apply to the Commodity Futures Trading Commission to register the SEF once that US regulatory body defines the rules for how SEFs should operate. The long-awaited rules will implement broadreaching policies adopted under the Dodd-Frank Wall Street Reform Act which call for electronic trading and centralized clearing of swap contracts through clearinghouses. That electronic trading could take place either though exchanges, otherwise known as designated contract markets, or SEFs. Electronic platforms such as Tradeweb, MarketAxess, Bloomberg and Intercontinental Exchange have also made no secret of their interest to offer SEFs and could be favored by banks and brokerage firms which have long dominated the derivatives market.
State Street says SwapEx will leverage the same technology used by its current Currenex, FXConnect and GovEx electronic trading platforms for foreign exchange and bonds which fall under the eExchange business. SwapEx will allow orders to be executed using a central limit order book, a request for quote model, indications of interest and auctions.
Written by Chris Kentouris, Editor-in-chief (Chris can be reached through Chris.Kentouris@hotmail.com)
