This page contains a Flash digital edition of a book.
Trading systems | Swap execution facilities


“The industry is not sitting on its hands. People are assuming that swaps trading will be more electronic and they are investing in electronic platforms and connectivity.” Matt Woodhams, GFI


those and also there are some things that will have to be done internally,” says Rucker. GFI is taking a similar approach, says


Woodhams. The firm is comfortable with some of the requirements it believes will come into play and views the technology that will be required as an evolution of where the company was headed.


The right connections


Connectivity will be a significant task, says Jonathan Morton, vice president at IPC. SEFs will want to connect to as many dealers as possible and there will be a substantial increase in bandwidth and investment to facilitate connectivity between SEFs and dealers, buyside firms and data repositories. “There is a fever pitch of activity as firms bring the required capabilities online because they see a large opportunity and a rapid return on investment in the swaps market.” Woodhams points up the importance of liquidity,


“You can have sophisticated trading protocols and high-performance technology, but an SEF or OTF must have liquidity. No one will look at a system alone; it will all be about liquidity.” Incumbents in the swaps world will look for ways to move into the electronic trading world while retaining their liquidity, he says. The task will be more difficult for newcomers who will find attracting liquidity a challenge. “Being a first mover in SEFs will be an advantage – if you have liquidity. Being a first


42


mover without liquidity won’t be an advantage and firms may well burn cash.” Woodhams says some firms already have fallen by the wayside because they have launched SEFs too early. “Many people felt SEFs would be well established by 2012; but we are perhaps still one year away from this.” Tim Dodd, head of product management for the SunGard Front Arena trading system, says first movers will gain a substantial advantage in attracting liquidity. He suggests a “good handful” of the large number of firms that have applied to become SEFs will survive in the long term. “Swaps are a smaller turnover, bigger ticket


area than other parts of the derivatives markets. By making trading electronic there will be some growth, but not a huge amount,” he says. SEFs will have to support not only an order book style of engagement with liquidity, but will also have to support request for quote (RFQ) type processes. “The market structure will be slightly different so simple exchange-based platforms and ETD platforms that can cope with RFQs will have to be adjusted in order to connect to SEFs.” Dodd says Europe is likely to develop in the same way as the US, with OTFs looking similar to SEFs in terms of capabilities. “It should be remembered that if you want to deal with US clients or markets that are going electronic, you will need to have the capabilities of participating in electronic markets.”


Best Execution | Autumn 2012


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84