Regulations Drive OTC Trading Buildouts
A plethora of regulatory changes—such as Dodd-Frank, Emir and MiFID II— are influencing demand for electronic trading of OTC products.
For traditional buy-side participants, who are allowed to trade directly on swap execution facilities (SEFs) under Dodd-Frank, a decision has to be made whether they set up their own market access and clearing infrastructures, or continue to use the services of a broker dealer to access liquidity and/or clearing services.
“Anticipation of regulatory changes, the need to reduce costs of computational power, and the increasing sophistication of the buy side are driving the more traditional OTC asset classes into the need for electronic price discovery,” said Emmanuel Carjat, chief executive of TMX Atrium, a provider of low latency connectivity services in Europe and North America.
TMX Atrium has added Trad-X on to the TMX Atrium “fabric”. Trad-X is interdealer broker Tradition’s hybrid trading platform for OTC derivatives products for European interest rate swaps (IRS).
“Since the launch of Trad-X, we have continued to gain significant market share in the electronic trading growth of European IRS,” said Yann L’Huillier, group chief information officer at Tradition, in a statement. “Connectivity to TMX Atrium gives our individual client sets additional choice and unrivalled access to multiple brokers across a high-performance platform.”
Connectivity to Trad-X is provided direct from TMX Atrium’s co-located facility in the Equinix LD4 data centre, just outside London, into the heart of the Trad-X matching engine.
Adding Trad-X highlights the growing range of asset classes available across the TMX Atrium community.
“The acquisition of Trad-X to TMX Atrium’s network is exemplary of how the fixed income market is becoming increasingly electronic,” Carjat said.
TMX Atrium, which launched in 2006, has benefited from the MiFID directive in Europe, as well as from similar directives in the U.S. and Canada announced between 2008 and 2012.
“Over its short history, TMX Atrium has seen increasing demand to connect both venues and trading participants across the following asset classes: equities, commodities, options, futures, FX, as well as fixed income,” Carjat said.
Connectivity fabric is the term used to describe the platform that TMX Atrium has built. The platform, based on an open standard IP and covering 400 end points across 11 countries, “has been designed for the financial services community, to allow clients to connect to all the participants on the TMX Atrium network”, Carjat said.
For example, brokers who are members of the TMX Atrium community can connect to the clients of exchanges, multilateral trading facilities (MTFs), alternative trading systems or electronic trading systems, wherever they may be geographically based.
“Once the data is available for price discovery, then participants will want to act upon it,” said Carjat. “Electronic transactional capability is the natural next step.”
SEFs are one of the primary mandates of the Dodd-Frank Act. They are required to increase pre-trade price transparency, post-trade trade transparency and minimize bilateral exposures between swaps counterparties. Under the new MiFID II rules in Europe, MTFs and organized trading facilities are expected to converge with SEFs from a regulatory standpoint.
“Aggregating SEF liquidity is going to be a very important requirement in the next year or so, especially for sell-side firms seeking to defend their existing swaps businesses,” said Bradley Wood, partner at research firm GreySpark Partners.
TMX Group acquired Atrium Network on 2011 and rebranded it TMX Atrium.
TMX Atrium, which operates as a unit of TMX Datalinx, TMX Group’s information services division, offers a North American, European and trans-Atlantic connectivity platform that covers the service areas that TMX Datalinx had planned to build out with its TMXnet network.
In early 2011, TMX Datalinx introduced TMXnet, and in June 2011 the TMXnet network was expanded into key U.S. financial centers.
“TMX Atrium simply follows the demands of its customers, connecting to new markets/asset classes and geographies,” Carjat said. “The recent addition of connectivity to Moscow is a great example of increasing customer demand for global expansion.”
The jury remains out on future gains in e-trading.
Liquidity and data transparency were top buy-side trader worries.
A look at the forces shaping technological advances in the world of data management.
Larger anonymous block orders can be traded in compliance with MiFID II.
Grossman was formerly CEO of Barclays Global Investors.