Faced with Dodd Frank mandate for SEF execution of cleared products, bank single dealer platforms (SDPs) would provide SEF aggregation and smart order routing services that enable their buyside clients to access liquidity, whether from the bank, or from SEFs.
So, it’s nice to see Tabb Group research now confirm our view.
Despite the fact that swaps execution facilities (SEFs) don’t technically exist yet and swaps market liquidity isn’t fragmented today:
Swaps dealers tell TABB Group in a new research report that they intend to spend millions to create, implement and market swaps liquidity aggregation systems to their buy-side client base.
Kevin McPartland, from Tabb has just published a research report on this topic, extract here:
Swaps liquidity is going to fragment. History tells us that a combination of available technology and catalyzing regulation, both of which now exist in the swaps market, creates an environment in which liquidity fragmentation across multiple electronic trading platforms is nearly inevitable. Regulatory reform will impact how this fragmentation takes place, but they will not prevent its coming.
This fragmentation presents an opportunity for dealers at risk of being disinter mediated by Dodd-Frank-inspired regulations, and technology companies that have had little opportunity in the overly manual swaps market. Aggregating liquidity via smart technology is common in other markets such as equities and FX; providers of such tools hope to make a splash with SEF aggregators using lessons they’ve learned from the past. Their enthusiasm is warranted, but creating SEF aggregators and advanced smart order routers for the swaps market is considerably more complex than it is for those other markets.
Full report on sale here