UK-based broker Icap has launched its forward rate agreement (FRA) matching system, Fra-Cross, for Australian dollar-denominated instruments. The new service intensifies Icap's pressure on Switchfix, the first matching service, launched out of Singapore by rival broker Tradition.Fra-Cross was set up in January 2002 to allow swaps and FRA traders to align their reset risk. These are vulnerable to future rate fixings.
For example, a trader paying a five-year swap who then receives a five-year swap several days later at a more favourable interest rate still has to deal with the floating legs of the trades. There is a risk that interest rate volatility will cause adverse effects on the profit/loss profile of the portfolio due to rate changes between the two reset dates for the duration of the two swap deals.
Icap said it now has a total of 300 customers from 90 international trading desks representing all the major derivatives trading banks. The broker said 17 major banks have signed up for its Australian dollar service.
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