Electronic derivatives brokerages merge

Two rival European electronic money market derivatives brokerages – Paris-based atenX and London and Stockholm-based iFox – are merging to form ATFox. The two individual platforms currently connect banks that account for around 60% of the total European inter-dealer money market interest rate swaps trading volume. So when the London and Paris-based merged platform goes live – expected late this summer – it will become the dominant electronic inter-dealer brokerage for the trading of interest rate swaps with a maturity of up to two years.

Talks between the two firms began in earnest just two months back, says Jack Parrish, Stockholm-based chief executive officer of iFox. “The merger makes sense because while we share a similar approach to the market, we have different client bases,” he adds. The merger will create a client base that spans all of western Europe – combining iFox’s strong presence in Scandinavia, Germany and London, and atenX’s strength in France, London and the Benelux countries.

Dealers agree. “It’s an excellent idea to merge these two platforms,” says Pablo Vergara, Netherlands-based treasury manager at Rabobank. “We use atenX and iFox, but perhaps each has been a little too limited individually. Merged, they will bring different participants with different outlooks together on a single platform,” he adds.

“It will link previously disparate pools of liquidity to create a single dominant platform for major players,” says a swaps market-maker at a European house who asked to remain anonymous. But other more localised platforms still have a place: “Platforms like e-Mider, for example, will continue to do good business with smaller second-tier banks,” he adds – referring to one of ATFox’s main competitor, Italy-based electronic brokerage e-Mider.

Backed by venture capital financing, Parrish co-founded iFox back in 2000. The firm’s initial focus was on interest rate swaps, but it soon realised that the real action was in the short end of the market. Over the past three years, there has been a greater than twofold increase in trading volumes of European Overnight Index Average swaps (Eonias). Overnight swaps have been around for a while, but the introduction of the euro has encouraged greater trading flows between European countries – making Eonias the preferred interest rate hedge in the money markets.

After a few months of sluggish activity following September 11, volumes have picked-up significantly, Parrish claims. “The average ticket size has grown too. Previously, transactions were typically in the E100 million–300 million range. Today, it’s not uncommon to book a E1 billion ticket,” he says.

Parrish says that combining the best features of each individual platform will encourage yet more business, but that simplicity is the key: “Some kind of bulletin board, or system that requires you to enter a large amount of complex data to get a trade done, is just not going to appeal to traders in the market,” he says.

All trades on the new platform go through a central order book, and though not an exchange, the front end will seem familiar to those that trade electronic exchanges, Parrish says. There will be flexibility in terms of the order types possible on ATFox. For example, both timed- and hidden-orders will be available to dealers.

But while the new electronic platform is fundamental to ATFox’s business plan, the new venture will take a hybrid approach. Standard vanilla derivatives will typically trade electronically, but for more exotic products voice brokerage will be available from HPC Group – one of Europe’s largest voice brokerages and formerly atenX’s parent company prior to a management buyout in 2000.

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