27 Jul 2004, Christopher Jeffery, Risk magazine
While Swapstream director Andre Keijsers described the increase in quote size as an important stage in the platform’s evolution, he refused to provide details of trading volumes, customer numbers or the tightness of bid/ offer spreads.
Dealers say trading on Swapstream has proven fairly sporadic, although they are happy with the overall development of the service. Trades of €200 million for 10-year swaps and €50 million for 30-year swaps happen “every now and again”, says one market-maker.
But these transactions are limited between the four market making banks - ABN Amro, Commerzbank, Dresdner Kleinwort Wasserstein and HypoVereinsbank. Customer flows are practically non-existent, although between four and six customers have signed up to the service in the past three months.
Dealers are now courting second- and third-tier banks to sign up to Swapstream. They believe banks lacking a customer distribution force that need to trade anonymously at fair-market levels should find the platform appealing. The service can also help banks that possess the risk management capabilities to allow them to quote broken date – for example, nine and a half years – swaps prices and hedge themselves on plain vanilla bullet securities offered on Swapstream.
Swapstream is the only multi-dealer platform for medium- to- long-dated swaps. The Blackbird platform developed in the US is effectively in ‘moth balls’ following the firm’s acrimonious scrap with former shareholder, UK inter-dealer broker Icap. Other electronic swaps platforms such as ATFox – created by the merger of atenX and iFox in May 2002 – target the short-term European overnight index average swaps market.
Barclays Capital, however, offers an electronic swap service through Bloomberg. The UK bank is committed to offer quotes of less than three quarters of a basis point from mid. But Swapstream’s backers believe their service offers tighter prices. “You have four market-makers and four curves with a bid/offer spread of maybe the same or less than Barclays, so the net result will be even tighter,” says one.
Swapstream now plans to add futures crossing, where dealers hedge out interest rate exposures, to its service in the third quarter, and has scheduled to start trading US dollar-denominated swaps early next year.