TrueEX has started operating in London business hours which the US exchange and swap execution facility said will help gain traction in Europe ahead of mandatory clearing beginning in the region in June.
Sunil Hirani, chief executive of trueEX, said in an email to Markets Media that the expansion was a major step for trueEX. He added: “Launching this support now allows us to sufficiently prepare for the upcoming clearing deadline.”
The European Securities and Markets Authority has said firms in the region will have to centrally clear certain interest rate swaps from 21 June 2016 to comply with the G20 commitment to clear standardised over-the-counter derivatives.
In the US trueEX provides an anonymous central limit order book for interest rate swaps while its SEF provides request-for-quote trading protocols and a proprietary portfolio terminations and compactions system through direct connectivity to multiple clearing houses. In London trueEx will be available from 7:30am with the market opening at 8am, supported by a dedicated sales, onboarding, regulatory, and IT team. European clients can access the same range of currencies, products, and features as those in North America.
Hirani said: “There are a lot of regulatory directives in the works now that will have big implications on the global derivatives market, and one of those is the mandatory clearing which should have a positive impact on trading volumes. This will bring Europe more in line with regulatory actions taken in the US and in Japan, and much of the rules outlined under Emir will be phased in under a three-year period, giving participants ample time to adapt.”
Analysis by ISDA has found that after SEFs launched in the US in October 2013, most non-US platforms chose not to register with US regulators and these venues closed to US participants. As a result, liquidity in the interest rate swap market fragmented geographically as European dealers shifted their euro IRS business to other European dealers, away from the US.
“Our expansion into Europe will help to alleviate this issue, especially considering the amount of growth we’ve experienced over the last year,” added Hirani. “The swaps market is not what it was entering 2015 and market participants are adapting to the changes that were implemented under Dodd-Frank.”
The recent agreement between the European Union and US on harmonizing clearing rules around the derivatives market should also help global liquidity according to Hirani. In February the EU and the US agreed on a “common approach” to the regulation of clearing houses. This will allow European regulators to grant equivalence to US clearing houses so that trades cleared through US CCPs will not face additional capital changes under European regulations.
Sunil Hirani, trueEx
Hirani expects the extended London trading hours to help trueEX gain additional traction in Europe as the firm continues to build out the number of currencies it supports and enhance its global derivatives capabilities. The platform currently supports 18 currencies and said that since launch it has traded more than $1.8 trillion in volumes and processed more than $10 trillion in post-trade services.
In another initiative ahead of the introduction of mandatory clearing, Trad-X, the interest rate swap trading platform, and Deutsche Börse’s Eurex Clearing launched a new central limit order book for EurexOTC cleared products in February. The new central limit order book initially focuses on the most liquid Euro interest rate swap tenors for Bund, Bobl and Schatz government bonds. Continuous two-way streaming prices is provided by a range of market participants including 15 of the largest global market participants.
Dan Marcus, chief executive of Trad-X, told Markets Media at the time: “In Europe we are slowly seeing an increase in appetite to trade interest rate swaps electronically but this does not compare to Trad-X in the US, where the SEF execution mandate means all of our bids and offers are submitted to the Trad-X screen. Accordingly, virtually all of our SEF trades are executed electronically in some way, shape or form.”
Nearly 80% of European investors still prefer to trade interest rate derivatives over the telephone according to the recent Greenwich Associates 2015 European Fixed Income survey, with the traditional request-for-quote model a distant second. The consultancy said only 20% of notional volume was executed electronically last year, and less than 40% of investors use electronic trading tools.
Greenwich said that before the SEF trading mandates in the US in 2013, electronic trading of interest rate derivatives by US investors was below the current European adoption at 15% of volume, but has since increased to three-fifths of volume being traded electronically.
TrueEX was launched by the team which founded Creditex, the first electronic trading platform for credit default swaps, which was sold to IntercontinentalExchange in 2008.
At the end of last year trueEX, together with JP Morgan and RBS, announced the launch of trueFIX. The real-time, automated execution and processing solution for all US dollar, euro and UK sterling swaps allows buyside firms to trade these products directly from their order management system for the first time.
Hirani said: “Adoption by the buy-side has been very positive so far since trueFIX was launched in December. trueFIX will be a key component of our service offering in Europe with the ability to clear Euro and UK Sterling swaps, particularly with direct connectivity to both LCH and CME.”
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