ICAP plc has hired Laurent Paulhac, a former CME Group OTC derivatives executive, as CEO of the firm’s Swap Execution Facility (SEF), as industry volumes begin to shift to the new derivatives trading platforms.
Previously, Paulhac was senior managing director for interest rate and OTC products and services and was responsible for CME Group’sglobal interest rate and OTC business strategies. Based on New York, Laurent will oversee and head up ICAP’s global SEF initiative as well as the SEF’s strategic direction with regard to new regulatory reforms and the company’s alliances and partnerships with exchanges and central clearing counterparties or CCPs, according to today’s release. Laurent will also be involved in managing i-Swap in the U.S., ICAP’s electronic trading platform for OTC interest rate derivatives.
Paulhac will report to Michael Spencer, ICAP’s Group Chief Executive Officer.
Paulhac joins ICAP’s SEF at a pivotal for the newly launched swap trading venues, which launched on Oct. 2nd. While the market is in the early stages of transitioning Dodd Frank laws are forcing large sections of the swaps markets to migrate onto electronic platforms.
A Goldman Sachs report published Oct. 22nd on e examining the first three weeks of SEF trading indicates that ICAP and Bloomberg are leading in the SEF volume trends. Goldman estimates that $6.3 billion in notional value in FX, interest rate and credit derivatives has been traded on SEF platforms since they went live on Oct. 2. The report notes that trading on SEFs is not mandatory now and won’t be until February of 2014.
Commenting in ICAP’s release, Paulhac said: “This is an extremely exciting time to be joining ICAP. As the market adapts to new regulatory requirements, SEFs will become a significant component of the wholesale financial market infrastructure. As a market leader in both electronic and voice broking ICAP is well positioned to benefit from these changes. I look forward to working with Michael and the management team to serve ICAP’s customers as our markets evolve.”
According to John Nixon, group executive director, Americas and Chairman and President of the ICAP SEF, Paulhac brings “a wealth of experience in exchange-based businesses and in asset classes that are important to ICAP. He added that Paulhac is joining ICAP at a key time in the evolution of its SEF.
“This structural shift has the potential to profoundly impact the competitive position of ICAP, Tullett Prebon and other market intermediaries,” wrote Goldman analysts in the report.
In hiring Paulhac to formulate its global SEF strategy, ICAP is clearly aware of the high stakes of this market transformation. “The SEFs come from a variety of different backgrounds and they all have different value propositions,” said Will Rhode, director of fixed income and swap market structure analyst at Tabb Group, in a recent interview.
While the known entities are Market Axess in credit and Tradeweb and Bloomberg in interest rate swaps, said Rhode, he suggested that buy side firms could opt to go to different venues.
“Interdealer brokers who have operated in the dealer-to-dealer market and by far have the biggest players in the marketplace, would obviously like to demonstrate to the buy side that they are a good pool of liquidity,” continued Rhode. “It difficult for them to talk to 700 buy side clients when they are used to talking to 20 or so dealers,” said Rhode. “They need to demonstrate liquidity and for the new guys and for the dealer side guys they need to show the buy side that they are a good pool of liquidity,” said Rhode.
Since buy side firms are not required to trade on the SEFs and some SEFs have a no action relief for pre-trade credit functionality until Nov. 2nd, analysts expect volume activity to gradually ramp up early next year.
While the new market structure is only in its initial stages, volumes have moved over to SEFs as competing platforms vie for market share. Though Goldman’s report said comparisons are complicated by different interpretations and reporting conventions, analysis of data from 12 SEF platforms suggests that ICAP has accounted for 76% of SEF trades in interest rate swaps, while Bloomberg’s SEF has handled 79%of all credit derivatives executed on SEF platforms.