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State Street Unveils New Swap Execution Facility

In launching SwapEx, the firm is looking to capitalize on a surge in swaps liquidity that's expected to transform the marketplace when the Dodd-Frank regulations take effect.

State Street Corp., one of the world's largest institutional investors, announced a plan to launch a swap execution facility later this year, when regulations force trades that used to be done over the counter onto electronic trading platforms.

Swap contracts had traditionally been traded directly between two parties, but when the Dodd-Frank regulations go into effect later this year, the large majority of them will be conducted between multiple parties on SEFs. The new trading landscape is widely expected to make the prices of these once-opaque assets more transparent, while boosting the amount of liquidity flowing throughout the market since the number of trades and participants are also projected to soar.

State Street says the SwapEx SEF will ultimately reduce operational risk for buy-side firms by automating the many stages of a derivatives transaction including execution, clearing, collateral management, and the cash and securities flows between the middle and back offices. It will also automate transaction cost and risk reporting, valuations and the reconciliation of positions, the firm added.

"Through State Street's comprehensive derivatives solution, buy-side clients will have a centralized means for trading, clearing and processing their swap positions," Jeff Conway, State Street's head of Investment Manager Services said in a statement.

State Street said it will file SwapEx's registration with the Commodity Futures Trading Commission later this year when the regulator's application window opens up. Meanwhile in preparation for the launch, the firm said it reached a deal with National Futures Association for it to provide regulatory services for the new SEF.

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio

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