As regular readers will know, we have been consistently stating the case that single dealer platforms are the logical conduit by which clients access swaps liquidity. Whether based on a risk pricing from a single bank (for non-cleared swaps, or for swaps of non-standard terms), or agency pricing (for cleared swaps), which will be (smart order) routed by the SDP to the SEF/dealer with the best price and terms (and link to clients preferred clearing house), and leverage the bank’s existing investment in clearing infrastructure.
Extract from a WSJ story from Thursday
UBS is one dealer developing such an agency model for swaps, leveraging off its technology and infrastructure in futures and equities. The idea is that customers place orders with their preferred dealers, who execute the orders with whichever swap execution facility, or SEF, has the best terms.
In some cases, the customer may meet UBS in a trade, but not in all, and in any event this approach gives the dealer a way to continue its relationship with that customer while layering on top its post-trade processing, research and other services.
Additionally, customers will not have to worry about connecting to every trading venue created, which could be costly and complicated, because their dealers will already have connectivity to those sources of liquidity.
“There’s no question agency will be a more efficient way for customers to trade,” said Paul Hamill, executive director in global credit trading at UBS, in an interview Thursday. “This model allows us to use our existing infrastructure to insulate customers from costs, whilst protecting their access to liquidity.”
It certainly feels like the momentum is growing here, and I am sure other major dealers have similar plans, although yet to go public with them.
The article also mentions some talk that perhaps interdealer brokers (IDBs) could open their platforms to enable buyside clients to directly route to SEF liquidity. Although, in my opinion, this ‘intermediation’ by the IDBs of bank to client relationships will be resisted by the banks.