Garban-Intercapital, a leading securities, derivatives and money broker, has announced that it will be adding interest rate swaps to the range of products it offers through its Electronic Trading Community (ETC).
In a ú6.6 million ($9.36 million) deal with Australian technology company and share registrar Computershare, the wholesale broker will integrate ASTS screen-based trading technology and develop an electronic platform for interactive trading and confirmation of interest rate swaps.
We are significantly the largest global broker in the interest rate swaps market and believe this market is now ready for major technology change," says Michael Spencer, chief executive of Garban-Intercapital. "We anticipate that screen-based trading of vanilla swaps will gradually emerge over the next few years, initially with partially automated quotation and execution."
The company says it will offer the electronic service to its financial institution customers in around 12 months, and will focus on a hybrid business model building on the strengths of its traditional voice brokered service.
Weve already got a business that runs quite well, brokering interest rate swaps without using anything too complex in terms of electronic trading, and the customers havent asked specifically for that yet, comments Michael Daymond-King, managing director at Garbans electronic trading division.
We're going to integrate it gradually, and see what the customers think. We've got a carefully planned out business model where we recognize the strengths and weaknesses of electronic trading systems. We definitely want to use the strengths to complement our regular business - it's just an extension in that regard.
Over time we think the market inertia for electronic systems in this particular product will move, and people will start using it, he adds.
The ASTS screen-based trading system is already deployed in a range of markets around the world including Finland, Norway and New Zealand, and Computershare is working with the Pacific Exchange in San Francisco to deliver an advanced stock options trading environment. The Garban-Intercapital implementations will be the first configured to deal with interest rate derivatives, but Peter Jessup, head of trading systems at Computershare, says the system was actually built with this kind of product in mind. ASTS has the ability to execute complex strategy orders already, but naturally there is some customization necessary for Garban-Intercapital, he explains.
Commenting on another derivatives trading initiative - SwapsWire, a consortium of 23 banks that includes many of Garbans customers - Daymond-King explains the difference between it and his companys plans: Banks want to improve the back end of what they do in terms of interest rate swaps trading. They want to improve the confirmation process and so on. The interbank business done between financial institutions is probably quite inefficient and I think SwapsWire addresses that. But if you look at SwapsWire it's not really a centralized pool of liquidity trading platform.
As for the protocol underlying SwapsWires initiative, FpML, Daymond-King says Garban-Intercapital welcomes any move towards standardization in the industry. As a money broking company we will certainly support any move towards a standard message structure, but in the meantime we've still got to go on with our business, so if Bank A wants one thing and Bank B another, then they'll get that.
Like the fixed income securities trading on ETC that Garban-Intercapital launched last year, the electronic interest rate swaps trading will be available to customers over an extranet - a dedicated IP connection with ISDN backup - or for non-established customers, or customers on the move, Garban-Intercapital offers the same services via the internet.