Swaps Exchange Gears Up for Dodd Frank Mandates

Gearing up for screen-based derivatives trading, Dodd-Frank compliant swaps exchange trueEX LLC, said it selected Interactive Data Corporation to host its matching engine on a global network connected to hedge funds and other liquidity providers.

IDC will provide a full suite of managed IT services through its 7ticks platform, which specializes in low-latency trading and market data services through a global network.

The move is a sign that swaps matching engines will be placed in data centers, and that regulated DCMs (designated contract markets) are gaining a competitive edge over swap execution facilities or SEFs.

While rules for swap execution facilities (SEFs) are not yet finalized, trueEX went down the DCM path for the $300 million global interest rate swaps market. The company said it’s the first Dodd-Frank compliant swaps exchange, which is slated to begin operations in 2013.

“TrueEX helps to enable the global trading community to automate their activites related to interest rate swaps trading,” stated TrueEX CEO Sunil Hirani in today’s release.

In a prior interview last November, Hirani said the new swaps infrastructure would move the market “from opaque to transparent, from unregulated to regulated, and from high touch, high cost to automated, low cost.”

Interest rate swaps were previously traded over the phone and lacked regulatory oversight. But under the Dodd Frank Wall Street Reform and Consumer Protection Act, swaps are mandated to execute electronically on regulated platforms and clear through central counterparties (CCPs).

According to Emmanuel Doe, president, Trading Solutions Group for Interactive Data, the managed services will be designed to address the needs of the new swaps trading environment. This includes helping participants facilitate “liquidity, fast execution and clearing,” said Doe in the release.

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The services will include monitoring and support for the trueEX matching engine and network architecture, along with connectivity to global exchanges such as CME and ICE for post-trade execution and clearing solutions. As the wired swaps market unfolds, trueEX market participants will gain access to financial exchange matching engines from anywhere on the 7ticks global network, noted the release.

“Ultimately they were looking for a seamless provider to help them manage that infrastructure and comply with the regulatory framework,” said Joe Bigane, managing director at IDC in an interview with Advanced Trading.

One of the key factors that TrueEX thought about was liquidity, said Bigane. 7ticks has a global presence with a number of customers on the network. “The potential for them to have one network to check in terms of its management infrastructure as well as to get access to a potential customer base that would provide flow to their platform was part of their decision making process,” said Bigane.

Leading hedge funds, FCMs, investment bank proprietary trading firms and exchanges, (along with independent software providers), are connected to 7 Ticks’ global network. The 7Ticks network provides direct market access (DMA) to more than 50 global markets with “advanced colocation and proximity services.

Once the trueEX matching engine goes live, it will need to put market data out to its participants. 7ticks will also create a data feed for dissemination to the DCM’s swap market participants, noted Bigane.

In the release, Hirani said that "Customers would look to TrueEX to meet their regulatory reporting, execution and clearing requirements through its electronic platforms." He added, they would also expect trueEX "to provide them with a state-of-the-art facility with all the benefits of security, reliability and redundancy that Interactive Data provides.”

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio