Tradeweb's Interest-Rate Swaps Volume Surges 90 Percent

Electronic trading activity spiked, as clients began to prepare for regulatory compliance, say Tradeweb.

In a sign that brokers and buy-side clients are preparing for new derivatives regulations, notional trading volume on Tradeweb's global multi-dealer-to-client interest-rate platform increased 90 percent for 2011's third quarter versus the same period last year.

Tradeweb Markets announced the results today ahead of the second annual swap execution facility conference, known as SEFCON, in New York.

Tradeweb said this surge in activity reflects a 114 percent increase in the delta, a widely used risk metric corresponding to a one-basis point movement in interest rates. Delta also reflects the risk outstanding on derivatives contracts.

The increased activity by clients not only reflects the volatile market conditions but an increasing number of companies active on the Tradeweb platform, occurring against the background pending US and European regulations.

Despite delays in finalizing the rule making for derivatives trading under the Dodd-Frank Act, Tradeweb said that clients are preparing for regulatory compliance. Final rules on derivatives trading in the U.S. under the Dodd-Frank Act are expected in 2012.

"Regulation is accelerating the transition of derivatives trading to more efficient markets," commented Lee Olesky, CEO of Tradeweb, in the release. "Market participants are starting to take the steps needed to comply with the underlying principles of market reform, even when faced with uncertain timing for implementation."

Once implemented, trading of most swaps will need to take place on a swap execution facility or SEF or exchange. Tradeweb intends to register as a SEF as soon as allowed, according to the release. (Other operators of fixed income and derivatives platforms intend to register as SEFs as well, including MarketAxess and Bloomberg).

Similar proposals are expected from European regulators, the release said, citing the Markets in Financial Instruments Directive (MiFIS) and European Markets Infrastructure Regulation (EMIR) discussions.

While electronic trading of interest rate swaps is rapidly increasing in advance of the transatlantic regulation, Tradeweb contends the trend has been growing since it introduced electronic multi-dealer trading of interest-rate in 2005. Average daily notional trading volume for Tradeweb's multi-dealer global interest-rate swap platform now exceeds $10 billion.

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