Brief article on Bank Consortiums on eFinancial with a focus on LiquidityHub. Quoting a Bank source: “The 16-bank consortium became quite unwieldy as there were a lot of interested parties with equal shares. The nine dealers that joined TradeWeb are the bulk of the market and they realized there was a better way of doing things, rather than fighting these battles internally through LiquidityHub.”


Just hearing rumours that the Bank Consortium are looking to close LH at c.o.b today!

Not heard why but can only guess a lack of take up and the fact that these markets have lead to the priority of the banks to move away from e-Trading in swaps. I had heard that the support of most banks on LH was tepid at best during it’s 6-month life.

UPDATE: defo happening today. Hard to say if temporary or permanent as they’re citing “market conditions” but you’ve got to think it is all over for LH.

An article in eFinancial News asking why e-Swaps have yet to take off:

Electronic swaps trading struggles to gain traction

Main points and my view:

– 5-10% of IRS traded electronically (I’d lean towards 5% given these markets) but JPM claim 5-30% for them, depending on market conditions
– Huge gap between the best e-Swaps houses (Barx, DB, RBS and JPM) and the rest (Indeed, far more so than Govt Bonds)
– Price transparency (lack of) and market conditions have hindered multi-dealer vs. single-dealer, as has the above dealer “quality gap” (Multi-dealer plarforms need more price transparency if they truly want to take off, but there are tier-1 dealers and tier-10 dealers, and not much in between)
– Multi-dealer (TradeWeb and LiquidityHub) will overtake single-dealer in time (not in these markets) says Goldman Sachs (what are they up to? 😉 ) and e-Swaps will account for 50% of trades in 18-months time according to Quod Financial (based on what? As they’d say in The Castle “tell ‘im he’s dreamin’!!!”)
– TradeWeb does $7bn in swaps a day (bet EONIA covers a good chunk of that) and have 9 fusion banks PLUS another 6 joing for USD IRS (although those 6 are 6 of the Fusion 9)
– SwapsWire adds value to e-Trading (does it? to the big boys making markets it does. Most tier-2 banks don’t use it or don’t even know what it is!)

Speaking of LiquidityHub, not much news of late, however I was chatting with “a source close to” / “a friend of” the system and they tell me that the number of trades have picked up. The most surprising part is that the bulk of them seem to be coming via Reuters rather than Bloomberg! Seems Reuters have a better GUI, so a client was telling me.

What a week and a half in the markets, huh? Only good thing was I was in Milan yesterday and it was 22C and sunny (shame about the 2-hour delay coming back due to the backpack idiot at Heathrow). Well I’ve been busy so here are a few pieces from recent weeks, and my view.

Some TradeWeb.

If I were TW I’d be more worried about Bear Stearns, especially, and a few of the other less than brilliant Banks they have as Price Makers. Wachovia has it’s issues and Dresdner and Credit Suisse are not exactly the greatest e-trading houses going around!

Some CME/Swapstream news

This quote from the article says it all about the offering “CME has no sellside support to boast of and that is critical to its success”. If you are in LiquidityHub and/or TradeWeb as a bank, why would you support an exchange that takes your clients away from you, will charge you for the pleasure of doing that and already charges you an enormous amout of money to trade and clear futures?

Also heard a rumour about Bloomberg trying to resurect SwapsHouse. My view? Similar to that about Swapstream.

e-Financial News reports:
Rainbow’ threat to exchanges and brokers
Luke Jeffs and Natasha de Terán
28 Jan 2008

A group of the world’s largest derivatives dealers and brokers have started talks about launching a European derivatives exchange, dubbed Project Rainbow. The move will increase competitive pressure on Europe’s futures exchanges and clearers.

No surprises that Goldman Sachs are involved. Suposedly joing them are Credit Suisse, Lehman Bros. and their fellow “not yet on LiquidityHub” members J.P. Morgan and UBS.

It has been some time since I’d seen Autobahn (the stand alone version, not what runs via Bloomberg or Reuters or whatever) in action. And I’ve not really ever had a good look at what they offer in IRS.

Well I can say I’m quite impressed. It is a single-dealer platform sure, but it really is the best thing out there in terms of functionality for the e-Swaps market place (sorry to tell you SwapsStream) and, along with BARX, product coverage. I’m talking Outright, Curve Spreads, Butterflies, 18 currencies, RFQ, Streaming Click and Trade, Limit Orders. And the best of all? Unwinds. You find the deal (whether dealt on the phone or electronically) you wish to unwind and open a ticket to unwind the swap there and then. Add in trading API, STP and even the simplicity of e-mail confirmations.

Being single-dealer, albeit one of Waratah’s Tier-1 FI e-Trading dealers, is a massive problem. Multi-dealer is undoubtedly what clients such as Hedge Funds and Tier-1 Funds want. But Deutsche Bank are hardly going to invite their competitors onboard, are they? 🙂

So what to do? Do the likes of LiquidityHub and TradeWeb (sorry to leave you out SwapsStream) simply copy the functionality? No trade mark on what Autobahn does, it simply replicates phone trading in a more efficient manner…the whole point of e-Trading.

Indeed TradeWeb does offer curve trades and butterflies. But it remains a Request For Quote driven government bond platform running on architecture from the late 90’s/early noughties. Although I hear they’re looking to jump on the Request For Stream (RFS) bandwagon after Fusion went ahead late last year.

LiquidityHub appears to want all functionality to fit into the RFS model, which counts out the vast majority of it’s Price Makers from being able to do broken dates, unwinds and also butterflies etc.

Time will tell, but certainly a multi-dealer platform that offers Autobahn-like functionality and products would go down well.

Well, not quite, but after acquiring IIC last month, they’re now going to buy SwapsWire.

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