Swapswire gears up for pilot testing program

Online derivatives trading to launch in Asia รป starting with Tokyo - this autumn.

SwapsWire, an initiative for online derivative trading, has announced details of its partnership with systems integrations specialists Syntegra in the lead up to the pilot testing phase of its product at the end of this month.

SwapsWire was formed by 23 shareholder banks last April. These shareholders, which include names such as Citigroup, HSBC, Goldman Sachs and Merrill Lynch, are collectively responsible for more than 80% of global over the counter (OTC) swaps business. The first phase is due to be tested soon by founder banks in London.

SwapsWire has been working with Syntegra since October last year in specifying and developing the technology components of the project. The system, based on core software supplied by AVT Technologies, will form the backbone for the trading of interest rate swaps and other interest rate derivatives online.

After the test period, SwapsWire will be rolled out globally, staggered every two months. The service will be launched in London in early summer, with a late summer launch in the US and an autumn launch in Asia.

Not surprisingly, given that Mizuho, Sumitomo Bank and Bank of Tokyo Mitsubishi are members of SwapsWire, Tokyo will be the first centre in Asia to see the service come online. It will be rolled out in other financial centres such as Hong Kong and Singapore after that.

SwapsWire will begin its service with vanilla instruments first, and eventually expand into more complex areas, says spokesperson Henry Hunter. “We’re looking at introducing instruments such as swaps, forwards, and swaptions this year,” he says  “Next year we’ll be looking at more instruments depending on the state of development of FpML.”

SwapsWire uses structured messages to transfer deal information between users and between computer systems. Structured messages are the key to straight through processing. Trade data is captured in FpML (financial products Mark-up Language), the emerging industry standard for defining derivatives transactions. FpML is based on XML, the internet standard for B2B automation.

FpML was originally an initiative of JP Morgan and PricewaterhouseCoopers to enable e-commerce activities in the field of financial derivatives. It is now run as an industry-wide initiative with a wide range of representation on the various committees and working groups. FpML version 1.0 was released last year, and version 2.0, which will extend product definitions to include interest rate caps, floors, swaptions, basis and cancellable swaps, and early swap termination, is under review, but likely to be finalized soon.

SwapsWire's chief technology officer (CTO) is a member of the FpML Standards Committee and SwapsWire's Technology Development Manager is part of the Business Message and Architecture Working Group. A number of the financial institutions that hold an interest in SwapsWire are also represented on the FpML Board of Directors and Standards Committee.

Besides its stated goal of establishing FpML as an industry standard, SwapsWire also hopes to provide the following benefits to industry participants: improved price distribution and discovery; cost savings made from the reduction of errors in concluding transactions and translating this information into internal systems; automation and streamlining of the confirmation process.