DTCC and Swapswire launch CDS services

technology news

Swapswire, an electronic processing network for over-the-counter derivatives, and the Depository Trust and Clearing Corporation, a clearing, settlement, and information platform, have both launched electronic credit derivatives matching services for the trading of credit default swaps.

CDS are one of the fastest growing forms of over-the-counter credit derivatives, but until now, a lack of standardization has made the dealing and transaction confirmation process extremely onerous for front- and back-office staff alike. These new systems, both fully integrated with Mark-It Partners’ Red (Reference Entity Database), are designed to simplify and speed up the transaction process.

Chip Carver, CEO of Swapswire, says that the Swapswire platform “allows dealers to quickly agree the legal confirmations, and to know that they have the same trade details in their systems. Traditionally, each side processes a trade through multiple systems before finally confirming it. When there is a mismatch, correcting the error and pushing the trade back through those systems further complicates the process and extends the time to confirm the transaction.”

But with the new systems, dealers can now confirm trades within minutes of execution, resulting in cost savings on the processing side, and a reduction in operational risk because trades are fully confirmed the same day. Until now, credit default swap trades have taken several days to clear using a fax-based process.

According to a benchmark survey by the International Swaps and Derivatives Association, dealers typically have more then 21 business days’ worth of confirmation volume sent but not yet finalised.

Mark Davies, head of global credit derivatives trading at Bear Stearns, says: “Now that the market has largely addressed the issues of documenting credit derivative transactions, having an automated procedure for actually executing the confirmations is the next logical step in the continued growth of the market.”

Five dealers are currently live on the Swapswire service, and nine are live on DTCC’s, with another four expected to go live soon. DTCC plans to expand its service in 2004, including the capability to do assignments and partial terminations as its first major improvement.

A MarketAxess expands

Online trading platform MarketAxess will offer its users syndicated loan indicative prices in the secondary market. The prices will be available through MarketAxess’s Corporate BondTicker product, and will be updated regularly throughout the day.

JPMorgan, the largest global arranger in the syndicated loan market, will provide the prices.

MarketAxess CEO Richard McVey says: “The addition of loan pricing information to BondTicker furthers our goal of providing comprehensive price information across a broad set of credit instruments.”

McVey also reflected on the product’s impact on the increasingly popular leveraged loans market. “The availability of price information for this $1 trillion market is an important step toward advancing the transparency of the leveraged loan marketplace,” he says.

The New York-headquartered Market-Axess has experienced a boom year, with a year-to-date global volume of $129 billion – four times the volume realized in the comparable period last year. The platform boasts over 8,000 individual users from over 700 institutions.

AMore technology news...

• Moody’s Investor Services will allow qualified institutional buyers access to information on the performance and make-up of collateralized debt obligations found in its Enhanced Monitoring Service reports, regardless of whether they participated in a deal. Data provided will consist of reported coverage ratios, test levels, and portfolio characteristics, such as weighted average rating factors and diversity scores.

• Standard & Poor’s Risk Solutions has launched Credit Risk Tracker, a credit modeling and information service covering over 500,000 European private companies. The quantitative analytical service provides probability of default scores and input into a bank’s own internal ratings of private company loans.

• Provider of risk management solutions FNX has added fixed income to FirstOrder, its web-enabled foreign exchange order management and trading system to allow trading of government, corporate, and structured bonds between banks and clients over the internet. The system allows online position management, real-time audit checks, and streamline pricing.

• Germany’s HVB Group will deploy Front Capital Systems’ Front Arena within its sales distribution, trading, risk management, and back-office departments. Under the agreement, HVB will use Front Arena to support its fixed-income, derivatives, and equities operations.

• Federal Home Loan Banks’ debt issuing facility, Office of Finance has licensed the Principia System to support fixed-income analytics activities. The Principia System provides debt analysis and supports deal capture, pricing and risk measurement, and relative value analysis for a range of agency bonds and derivatives. The Office of Finance will go live with the software at the end of the year.