Any day now, the CFTC will make a decision as to when the rules for Swap Execution Facilities (SEFs) will come into force. These rules will drive trading of interest rate swaps and credit default swaps onto several new electronic trading platforms, all within a short time frame.
Setting up electronic trading for OTC markets such as fixed income, however, is more complex than trading on exchanges.
Looking at the dealer-to-client (D2C) markets as an example, dealers need to establish relationships and connections with both the trading venue and their clients before they can trade on an electronic platform like SEFs. In order to reach their entire client base, dealers will need to access several trading venues at the same time.
[Related: "Interest Rate Swap Futures: Finally the Right Time"]
Further, these relationships can get quite detailed, with specific controls governing which products can be traded. In addition, other information, such as sales coverage, needs to be configured in the trading venues’ systems.
It is vital that this area of the business is managed carefully, but managing these trading relationships is complex and involved. Yet today, enabling a client to trade with a dealer on these OTC trading venues is largely a manual process. Each trading venue has its own user admin screen, where the dealer’s client administration staff key in the details of each client trading relationship, often manually entering the same data multiple times when the relationship is replicated across multiple venues.