Icor plans to offer electronic rate swaps at year-end

Electronic interdealer broker Icor plans to offer dollar-denominated interest rate swaps at the turn of the year. The New York-based broker, 50% owned by global information services company Reuters, currently trades only foreign exchange options.

Icor will first roll-out its swaps engine, now in phase-three trial development, in New York, Icor chief executive Jeff Larsen told RiskNews. Larsen said the swaps platform will then be extended to Europe and euro swaps added to the service. Following this, Icor will offer swaps trading to Asian clients and add more currencies to the system. This should take place rapidly over a series of months.

To date, few interest rate swaps transactions are traded electronically, and none of the main electronic platforms release trading data. The largest purely electronic dealer in Europe, ATFox, created through the merger this year of atenX and iFox, handles European inter-dealer money market interest rate swaps. Meanwhile, Blackbird, developed by ex-JP Morgan bankers Shawn Dorsch and Ray May, started trading in 1999, offering an array of swaps instruments and currencies in different geographical regions. SwapsWire, a multi-bank initiative, including some of the largest dealers such as JP Morgan Chase and Deutsche Bank, had yet to start trading in May.

The electronic trading of swaps is not technologically easy. This is compounded by the need for a robust and active online credit line management tool, Michael Spencer, chief executive of the world’s largest inter-dealer broker, Icap, told Risk last year. Technology issues have plagued the SwapsWire initiative, which was first unveiled in April 2000. Consistent delays were cited as the reason ex-Goldman Sachs head of interest rates e-commerce, Chip Carver, replaced Andrew Brown as SwapsWire chief executive in April this year.

But Icor believes its patent-pending ‘line minder’ credit line management tool, already in use on the FX options platform, has made the development of a swaps trading platform relatively simple. Line minder allows users to allocate counterparty credit limits across a range of segments, for example swap maturity.

But like other electronic brokerages, Icor’s main challenge will stem from boosting liquidity on its electronic platform. Larsen plans to combat this by asking early adopters to sign documents to guarantee a minimum amount of trade flow on the system. This initial amount of liquidity, combined with transparent pricing, could attract dealers, especially from second or third-tier institutions, which some claim receive relatively poor treatment from voice-brokers that make their largest revenues from a number of tier-one banks.

Meanwhile, Icor, which signed up 16 European banks to trade forex options via its system in Europe last Monday, plans to offer forex options to US-based institutions in either August or September. The move is the final piece in the roll-out of Icor’s forex option platform. Larsen said another eight banks should sign up in Europe during the next couple of months.

Larsen said Icor now has 25 sites in Asia since the broker went live at the start of the year, but he declined to disclose trading figures or offer a break-even date, citing “competitive reasons”. But critics of electronic platforms claim they fail to provide such data due to low transaction volumes.

Icor’s foreign exchange options service is now in version five, which includes trade-trigger sound alerts. The system is available via Reuters 3000 dealing machines, which some claim solves much of distribution issues surrounding the development of electronic trading platforms.