Derivatives users embrace trading venues ahead of regulatory compliance.

Electronic trading off interest rate derivatives is surging as market participants prepare for regulatory compliance.

Tradeweb Markets has announced a 90 percent increase in notional trading volume on its global multi-dealer-to-client interest rate derivatives platform for the third quarter of 2011 versus the same period last year.
This surge in activity, reflecting a 114 percent increase in delta, is taking place against the backdrop of pending U.S. and European regulation.  The shift reflects not only greater activity by clients in volatile market conditions but an increasing number of companies active on the Tradeweb platform.

While electronic trading of interest rate swaps is rapidly increasing in advance of transatlantic regulation, the trend has been growing since Tradeweb introduced electronic multi-dealer trading of interest rate swaps in 2005.

“Average daily notional trading volume for Tradeweb’s multi-dealer global interest rate swap platform now exceeds $10 billion, as dealers, interdealer brokers and asset managers are looking to reduce costs,” said Lee Olesky, CEO of Tradeweb, at Monday’s SEFCON II conference in New York.

Final rules on derivatives trading in the U.S. under the Dodd-Frank Act are expected in 2012. Once implemented, trading of most swaps will need to take place on a swap execution facility (SEF) or exchange.

Tradeweb intends to register as a SEF as soon as allowed. Similar proposals are expected from European regulators as part of the Markets in Financial Instruments Directive (MiFID) and European Markets Infrastructure Regulation (EMIR) discussions.

Central clearing and mandatory post-trade reporting are also required under the proposed U.S. rules. Tradeweb has links in place to all the major derivatives clearing houses and has already announced a series of industry first, regulation-ready trades.

Market participants are starting to take the steps needed to comply with the underlying principles of market reform, even when faced with uncertain timing for implementation, Olesky said.

While electronic trading of interest rate swaps is rapidly increasing in advance of transatlantic regulation, the trend has been growing since Tradeweb introduced electronic multi-dealer trading of interest rate swaps in 2005.

Since 1998, Tradeweb has operated a global fixed income and derivatives trading network that harnesses the distribution of the major investment banks with over 2,000 institutional clients.

In 2008, Tradeweb introduced inter-dealing broking capability with the acquisition of voice broker Hilliard Farber in 2008 and subsequently launched an electronic IDB platform.