Q-Wixx, a new electronic platform for trading credit derivatives portfolios, has conducted its first electronic trade of a bundle of credit default swap (CDS) contracts.
The trade involved four dealers - Credit Suisse, Deutsche Bank, Goldman Sachs and JP Morgan - and the credit-focused hedge fund Cairn Capital. The portfolio included 131 North American and European names, totalling $1 billion and EUR500 million, respectively, and was executed in 10 minutes using the platform. According to Q-Wixx's parent company, New York-based electronic trading platform Creditex, putting these types of transactions through manually would typically take hours - and up to a day in the case of large portfolios.
The platform was designed to create processing efficiencies when executing 'offers wanted in competition' and 'bids wanted in competition' transactions - lists of large numbers of names with notionals of more than $1 billion or EUR1 billion. Typical lists involve 70-80 names, although some involve several hundred, and have notional values of hundreds of millions of dollars. The market often sees seven to 10 portfolio deals a day.
Q-Wixx is in the process of being spun off from Creditex. The parent company hopes electronic trading will make trading in credit derivatives faster and more efficient. At present, trading a portfolio involves contacting multiple dealers for valuations of each name in the portfolio, a lengthy and labour-intensive process that is also prone to error. Transferring lists of prices from spreadsheet to spreadsheet by hand involves significant risk, says Mazy Dar, New York-based chief strategy officer at Creditex. "A lot of the time, dealers have to fix prices for 30 minutes - that creates a lot of market risk," he notes.
As a result, dealers tend to be conservative in their pricing, with a margin to allow for market movements. A faster response time would allow more aggressive pricing, and therefore a more efficient market. "Q-Wixx gives our clients a very efficient platform that provides the assurance of execution and the necessary transparency," says Guy America, head of credit trading at JP Morgan in London.