BarCap launches first single-dealer electronic platform for euro swaps

Jerry del Missier, BarCap’s global head of rates, said the new platform, which is available free to the bank’s clients, will bring increased liquidity and efficiency for investors seeking to trade in the interest rate swaps market. The bank said it eventually intends to expand the platform to include dollar-denominated swaps and swaps in other currencies, and may in the future also enable participants to trade more exotic products.

The new platform is being targeted at financial institutions outside the top tier of swaps dealers. It also targets corporate and mid-tier bank treasury departments, asset managers and hedge funds. Clients will be able to trade the product through the BARX page on Bloomberg.

The most obvious concern regarding the service is the involvement of only one dealer. Typically, swaps counterparties seek markets with the deepest liquidity and most efficient pricing. But del Missier believes the bank’s position as a top-three interest rate swaps dealer in Europe would enable it to quote tight prices for its clients.

Other dealers, however, were sceptical. Christophe Coutte, director of euro swaps at Deutsche Bank, said the platform is unlikely to attract new clients to BarCap’s swaps business. Coutte said even mid-tier financial institutions, which tend to carry out trades on an infrequent basis, are more likely to telephone a number of dealers until they receive an acceptable price than trade via an electronic platform.

Deutsche has its own internal electronic swaps platform that is used by traders on other desks, including those working in equities and fixed income. He said this capability could easily be extended to clients, but the bank believes there would be little demand for such a service.

Following a four-week testing period, BarCap has been able to release the platform as a complement to its existing cash trading facilities. However, the platform will not compete against existing electronic platforms including ATFox, Icor and Swapstream, which focus on the inter-dealer market. Del Missier said that unlike these platforms, which are predominately focused on the short-term swap markets, BarCap’s service will make it easier for clients to trade across both short and medium-term maturities.

Electronic swap trading has so-far been constrained by the technical difficulties of getting real-time price data and instantaneous credit-checking facilities, as well as the apparent lack of demand from clients. To date, even technologically sound inter-dealer platforms have had limited success. For example, Blackbird, the North Carolina-based broker, has virtually exited the electronic dealing market after its efforts to build up liquidity in a range of derivatives products.