Start-up swap execution facility trueEX has become the first regulated platform to execute dealer-to-client Brazilian Real interest rate swaps, reflecting growing interest among buyside participants to trade over regulated platforms even in products that are not yet covered by the Dodd-Frank trading mandate.
The first trades, which took place last week, follow the launch of Mexican peso swaps on the platform at the start of this year. The addition of Brazilian Real swaps takes trueEX’s offering to 19 currencies and the platform is considering expansion across Asian emerging market currencies and additional products in the coming months.
“Our goal was to offer products in Mexican pesos and Brazilian Real to the buyside in September and we’re now in the process of scaling that and increasing volumes,” said trueEX CEO Sunil Hirani. “Within swaps, we’re getting close to 100% product coverage but we’re always looking to add more currencies and geographies and add wherever buyside and bank clients show demand.”
The addition of Brazilian Real swaps followed an April agreement with CME to provide execution for trades that are cleared in the Chicago-based clearing house.
Enticing buyside firms into SEF-traded peso and Real swaps is no easy feat as the products are not widely traded on electronic platforms. However, Latin American markets are some of the fastest growing in the swaps world and more activity is being moved into clearinghouses. The CFTC recently mandated fixed-to-floating swaps denominated in Mexican pesos for central clearing, while Banco de Mexico mandated local swaps for clearing in April. CME currently has open interest of Ps16.8trn (US$890bn) in Mexican peso swaps and R$510bn (US$159bn) in Brazilian Real swaps.
Under “made-available-to-trade” rules, SEFs have the power to apply for new currencies and tenors to become subject to the Dodd-Frank trading mandate once execution is offered on the platform. TrueEX, however, has no intention to push Latin American currencies to be mandated for SEF trading any time soon, opting instead to rely on a voluntary shift to build liquidity in the currencies.
“We tend to do better in products that don’t have a trading mandate as we’re able to provide a value proposition that is differentiated from competitors,” said Hirani. “Buyside want to trade with greater transparency and execute more efficiently, and not just in mandated instruments.”
As a dealer-to-client specialist provider, trueEX has attracted 80 buyside clients by offering access to its anonymous central limit order book. Dealer-to-dealer providers that dominate the market typically operate name-give-up, which prevents buyside firms from trading on a fully anonymous basis.
While there is still work to do in attracting bulge bracket providers to achieve critical mass, the platform already has 21 active bank clients.
“There are immediate benefits in processing, post-trade and other downstream services and buyside and bank clients come to us for the ability to execute and process any currency across any jurisdiction, and in any manner they want to,” said Hirani.
A recent Bank of England study found that moving standardised swaps onto electronic venues had been overwhelmingly positive for the instruments, boosting liquidity and cutting execution costs by as much as a third compared to over-the-counter markets.
TrueEX has been fighting for its place in a market dominated by incumbent providers Bloomberg and Tradeweb, which is part-owned by Thomson Reuters, IFR’s ultimate parent. Successes from start-up providers have been few and far between. Recent plans by BATS Global Markets to acquire Javelin provided the latest sign that stand-alone providers are struggling to keep afloat.
TrueEX has proven to be an exception so far, continuing to increase its market share. In September, the platform’s share of the dealer-to-client SEF market jumped to 18%, from 10% during the second quarter.
The platform has posted number one or two positions in SEF-traded swaps on some days. On September 7, for example, the platform had its most active day yet with US$111bn notional-equivalent traded out of a total SEF volume of US$598bn, according to data from ISDA SwapsInfo.