Icap has launched an electronic credit derivatives trading service via its BrokerTec platform, which typically handles Treasury bond and repo transactions.It will cover the inter-dealer flow credit default swap (CDS) market – high-yield and investment-grade single-name corporate CDS and iTraxx indexes. Emerging market CDSs will continue to be voice brokered.
London-based Icap now joins inter-dealer rivals GFI – which dominated Risk’s CDS broker rankings in September – Creditex and Prebon in having an electronic trading capability for the CDS market. This leaves CreditTrade as the only major CDS broker sticking to pure voice broking. A CreditTrade spokeswoman said the company has no immediate plans to offer an electronic service.
Creditex surprised market participants this year when it launched its electronic platform in February trading credit index products. It charged €500 per trade on notional amounts of €25 million, or €10 million on the high-yield index.
Matt Gibbs, head of CDS broking at Icap, said the BrokerTec platform would be used in a hybrid fashion. “Icap believes the value we add is not only in our technology, but also in our voice broking. This is where our strengths lie,” he said. Although there is full electronic capability, there will continue to be voice interaction with brokers as long as clients demand it. Gibbs said initial electronic volumes had exceeded expectations, but added it was still too early to guage the overall success of the new service.
Electronic broking platforms mitigate the settlement risks encountered in voice broking. This, along with reduced staff costs, allows brokers to charge less. But Gibbs refused to provide Icap's specific charge structure, saying only that the broker offers a flat rate fee that represents a “fair reflection” of the risks involved.
Icap estimates its combined voice and electronic share of the US Treasury market rose from 41% in the third quarter of 2003 to 58% in the third quarter of 2004. Trading volume was up by 59% to US$9 trillion in the same period.
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