JP Morgan backs TradeWeb launch of multi-dealer swaps platform

Thomson TradeWeb will launch a multi-dealer interest rate swaps trading platform in Europe at the beginning of 2005, and has received the support of JP Morgan Chase - the bank that dominated Risk ’s inter-dealer swaps rankings in September

Swaps trading platforms have so far either allowed buy-side institutions to access prices from a single dealer, such as Barclays’ Barx product, or have served the inter-dealer market only, for example Swapstream. TradeWeb, which operates as part of the Thomson financial group of businesses, will be the first to allow buy-side investors to obtain price quotes from a range of dealers, the company said.

To date, only JP Morgan Chase has confirmed its participation. But TradeWeb plans to unveil other backers in the coming months.

The platform's aim is to provide enhanced liquidity and transparency to investors, while giving dealers a better distribution network for their products.

Lee Olesky, president of Thomson TradeWeb, said the platform had already gained a strong presence in European government bond, US Treasury and other markets. “We do $125 billion a day with customers around the world, with around 18,000 users. We also have a successful track record with dealer-to-user platforms,” he said.

Olesky is confident TradeWeb's critical mass of dealers and buy-side customers in bond trading will help it establish a liquid multi-dealer rates platform. He says current clients include European central banks, and top asset managers such as pension funds and hedge funds.

The TradeWeb platform operates a request-for-quote (RFQ) model where the client nominates dealers on the platform, requests a real quote based on the indicative levels he sees and receives instant quotes.

“The request-for-quote dealing model is the most appropriate dealing protocol for the interest rate swaps market," said Ashley Bacon, head of European interest rate trading at JP Morgan Chase. "I would expect existing clients may trade more frequently and the client base will grow.” He added that TradeWeb’s advantage lay in its technology being well tested through the bond-dealing platform.

A Swapstream spokesman said his company’s business was currently inter-dealer only. “Our user board consists of market makers and brokers,” he said. However, he conceded that, in theory, there was no technical reason why buy-side institutions could not be added to it.

A September report on electronic swaps trading by Celent, a Boston-based consultancy, said there were still major barriers to dealer-client electronic trading: “Credit, pricing and product specialisation issues continue to impede dealer-to-client trading, and it appears unlikely that client firms will gain access to inter-dealer swap liquidity any time soon.”

TradeWeb plans to roll out its swaps platform at the beginning of 2005.

According to its mid-year 2004 survey, the International Swaps and Dealers Association said outstanding global notional volume traded for interest rate swaps grew 16% in the first six months of 2004 to a total of $164.49 trillion, compared with $5.44 trillion for credit derivatives and $3.79 trillion for equity derivatives.