Advanced Trading: Do you expect to see a fragmented swaps market when Dodd-Frank goes into effect?
Davie: Fragmentation is an emotive word. I take an entirely different tack. I think we’ll undoubtedly see substantive, material change. We’re already seeing some emergence of a difference in pricing between cleared trades and un-cleared trades and changes in the interest rate swap (IRS) markets, which reflect the expected mandated rules changes.
Advanced Trading: How would you outline that difference between cleared and un-cleared? Is there more liquidity in one area than the other right now?
Davie: I think we’re moving in that direction. It’s hard to assert that we’re there, but we are starting to get those two markets. There’s the interbank market and then there’s the buy side - the end user market. The end users come into the market through their different executing brokers. So within the interbank market we’re seeing the likes of ICAP and Tradition and various other interdealer brokers offering systems where the touch price - the executable price on the screen - is only available to people whose firms are with access to clearing. So the tightest price – the deepest liquidity, is available to cleared IRS only. That’s not to say the non-cleared price sometimes might be the same, but now as a general matter you’re seeing this sort of bifurcation in the interbank market between cleared and un-cleared. But I think it’s too soon to say that’s the case for the buy side.
Advanced Trading: Will the buy side need platforms that connect them to the clearinghouses or do they already have that capability?
Davie: One of the changes we implemented last year is to make our API more openly available to give the buy side more choice as to how they access clearing. We opened up our API to Tradeweb and Bloomberg, and potentially will open up to other swap execution facilities. That allows the buy side to choose how they want to get their trades into the clearinghouse. They will be able to go through MarkitWire and most other middleware providers. It’s definitely our view that clients all want choice and clients want less middleman and a more efficient, leaner, more futures-like process.