Single-Dealer Platforms and SEFs

Last week saw the introduction of mandatory execution on new SEF platforms for certain standardised interest rate swaps. Such swaps will no longer be executed bilaterally between banks and their clients, but rather must be executed anonymously on SEFs.

The move to SEF trading has however been tentative, with many buy-side firms holding back, nonetheless by midweek some 74% of the 372 IRS trades were being executed on SEFs, according to data from Clarus.  Although there are 23 newly registered SEFs , the majority of business so far has tended to flow through to the incumbent inter-dealer platform SEFs.

But what about single-dealer platforms (SDP), how are banks managing the migration to SEF trading?

As the prime relationship channel through which clients access their liquidity single-dealer platforms are therefore ideally placed to also act as introducing brokers routing the client’s interest through to the SEF for execution.

This is exactly what UBS has done, acting as an introducing broker, completed the first trade today involving an end customer entering an order via the UBS Neo Execution Services platform, which was automatically routed to trueEx and executed against the anonymous central limit order book (CLOB).

Paul Hamill, Global Head of Fixed Income Agency Execution, said that:

“Our goal is to help our clients navigate this rapidly changing market landscape and we believe the introducing broker model is most efficient and effective way for clients to access the regulated SEF markets. This model provides our clients access to liquidity across all the SEFs, without the complex technological, legal and operational requirements associated with direct membership or sponsored access models. We are very excited to have executed the first client CLOB trade using this model for our client.”

UBS routed the first trade using true agency style execution; the client communicated their order via UBS Neo, the Investment Bank’s unique global distribution and execution services platform, which was routed to the Swap Execution Facility (SEF), with the pre-trade credit check against UBS as “Standby Clearer” at the SEF prior to the trade’s execution and clearing at CME.

More here on UBS

This is another example of how Single-Dealer Platforms will continue to evolve and remain relevant to clients.