GFI launches electronic CDS index trading in the US

GFI Group, the New York based inter-dealer brokerage, has launched its electronic credit default swap (CDS) trading system, Creditmatch, in the US.

The service, which has been running in Europe for the last six weeks, will allow GFI’s clients to trade the Dow Jones investment grade and Dow Jones high volatility indexes electronically.

The system also runs as a ‘hybrid’ platform, where traders will be able to see prices for single name banking and emerging market sovereign CDS on screen, but will have to call a broker to execute a trade.

Michael Fuhrman, credit specialist at GFI, said although GFI has the capability to trade all CDS electronically, traders in the US only wanted full functionality in the system for the indexes. “To expand the system beyond index trading is simply a case of flicking a switch. The capability is there for when traders decide they want to use it”, he said.

The move to launch the service in the US is linked to GFI’s desire not to fall behind the competition. Creditex, the New York-based brokerage, has already launched its electronic trading platform in the US, and GFI will be matching Creditex's price of $500 for a $25 million electronic CDS trade.

Although Fuhrman believes a sizeable proportion of CDS trading will eventually go through electronic platforms, he does not expect electronic trading to replace the relationships that many traders have with their brokers. “All the traders put a lot of value on information and market colour they pick up when talking to an individual. Such relationships are very important”.

The European system allows a much wider range of CDS to be traded electronically. “In Europe, traders wanted to see everything, indexes, single name corporates and so on, available for electronic trading. In the US, the response was much more muted”, says Fuhrman, an attitude he attributes to the demographics of the traders themselves. “In the US, credit derivatives traders tend to come from the corporate bond market, which is all done over the phone. In Europe, however, they tend to be younger and more willing to embrace technology”.Deutsche Bank, Merrill Lynch, Lehman Brothers, Credit Suisse First Boston, Barclays, Bear Stearns, HSBC and KBC have all signed up to GFI's new electronic trading platform.