Icap debuts i-Swap for price delivery

Inter-dealer broker Icap is rolling out a free service, i-Swap, to automate interest rate swaps price delivery and trade confirmations for its top clients.

The Europe-only service falls short of online execution capabilities, but if users want transaction capabilities, the broker can supply them.

The system, developed with Australian technology vendor Computershare, has been in the works since April 2001. Icap has used the system internally for electronic booking of trades into the broker’s back office since October 2001, and began a European rollout with its first client in November last year.

The broker now has three dealers using the data front-end and e-confirmation service, and said another eight are in internal quality assurance testing, with a target of 30 more banks by the end of the first quarter. Icap refused to name the institutions involved.

The system, based on Computershare’s ASTS electronic equity exchange system, was adapted to Icap’s requirements. Kieron Nolan, i-Swap director at Icap in London, believes about 20% of the system is completely new.

While it offers price distribution and back-end links, i-Swap does not offer electronic trading. Icap has been unable to make money from electronic swaps trading so far, and Nolan said there is not sufficient client demand yet for swaps brokering. But he added that electronic execution could be added if clients want it. Icap’s selection of an exchange trading system will allow it to compete with fully electronic swaps brokerage services such as Blackbird and Icor.

Nolan said the decision not to offer electronic execution immediately represents a corporate hedge by Icap against the swaps market moving significantly into electronic transactions. The choice of Computershare is also a step by Icap to broaden its systems provider base. Icap has its own proprietary fixed-income trading system, ETC, and has announced plans to acquire the Brokertec electronic Treasury system based on technology from Swedish vendor OM. This is expected to replace some of Electronic Trading Community's (ETC) technology, should the deal go through.

So for the time being, clients will still call Icap brokers by phone to trade, based on real prices for approximately 1,000 interest rate, overnight index swaps and forward rate agreement (FRA) instruments. The prices are distributed directly via Icap rather than using indicative prices from Reuters or Bloomberg. Traders view the prices on a PC-installed (or server-installed, if used by more than 30 brokers) Microsoft Windows application written in C++, with data delivered via a virtual private network (VPN) service operated by Savvis Communications, the costs of which Icap covers.

The broker then enters the order into i-Swap, which sends it to Icap’s electronic back office, and generates a fax or electronic confirmation to the bank.