Yesterday, Tradeweb said its swap execution facility submitted a regulatory filing to the Commodity Futures Trading Commission, spelling out which derivatives it intends to be made-available-to-trade on TW SEF LLC.
Through the self-certification MAT process, Tradeweb indicated that that interest rate and credit default swaps will be made available to trade on its SEF, and that these derivatives represent about 80% of standardized swap volumes based on market data.
[For more on ATale of Two SEFs:Javelin and TrueEX on Swap Trading, see Ivy Schmerken's related story.]
The list of swaps includes a range of tenors in interest rate derivatives for U.S. dollars, Euros and British pounds and certain CDS indices (CDS and iTraxx).
The fixed income and derivatives market operator said it analyzed years of historical data from the trading activity of more than 350 market participants to determine the “right balance “ of swaps for the MAT submission, according to the announcement.
“As an operator of electronic derivatives markets for more than eight years, Tradeweb is uniquely positioned to help determine the right scope and scale of derivatives instruments to be made available to trade on SEFs,” commented Lee Olesky, CEO of Tradeweb Markets in the announcement.
Tradeweb is the latest SEF to file the MAT determination. Two weeks ago, Javelin Capital Markets and TrueEX submitted their respective MAT submissions to the CFTC for trading interest rate swaps, which started a debate on how mandatory SEF trading should be phased in.
While Javelin’s filing covers interest rate swaps denominated in US dollars, British Sterling and Euros from one month to 51 years in duration, TrueEX’s filing focuses on listing the most liquid, benchmark swaps with tenors (a.k.a. maturities) of 2, 3,5,7, 10,15, 20 and 30 years on its platform. This sparked discussion on the best way to proceed with SEFs on day one.
In an informal poll, Kevin McPartland, head of market structure research at Greenwich Associates, asked buy and sell side readers if SEFs should include only the most liquid points on the curve or all interest rate swaps regardless of tenor. Based on 99 responses, received across three days, McPartland reported, “The market wants to start off with only the most liquid points on the curve, which equates more or less to the ISDA MAC contracts. “
Specifically, 72% of respondents want the MAC contracts-, 27 % want swaps on the full interest rate curve, while 2 % want something else. McPartland disagreed contending that there’s no reason that all points on the curve couldn’t be listed on SEFs, since the RFQ method could handle the less liquid swaps. McPartland argued that a narrow determination of only the most liquid contracts could cause confusion over what’s included.
However, Tradeweb’s release conveyed that it’s leaning toward standardized swaps for initial trading on its platform, as opposed to listing all points on the curve.
“The derivatives we have submitted to be made available to trade constitute approximately 80 percent of overall standardized swaps volumes based on available market data, and we are confident the industry will make a smooth transition onto SEFs as these swaps begin trading more electronically,” said Olesky in the same statement.
The proposed list of swaps addresses six factors identified by the CFTC, including a willing number of diverse market participants, frequent transactions, significant trading volume, relatively consistent bid/ask spreads, and an average number of bids and offers, stated Tradeweb.