OTC Markets Transform

Terry Flanagan

Execution and clearing precede regulatory mandates of Dodd-Frank.

The transformation of the OTC swaps markets from a bilateral toward a multilateral, voice/electronic, and centrally-cleared structure, is already well underway prior to legislative reforms such as Dodd-Frank and EMIR.

“Although the legislation seeks to hasten a move toward an environment with greater electronic trading, price transparency and the use of clearing, the fact is that markets have been taking these steps for a number of years,” Jeffrey Maron, head of client technology at GFI Group, told Markets Media. “The energy market, for example, is 90 percent cleared, and we offer screens in the U.S. and around the world, so there is a lot of price transparency and pre-trade price discovery already taking place.”

GFI EnergyMatch Europe, for example, provides a gateway to a number of exchanges and clearinghouses, providing customers with a range of both cleared and OTC products.
The need to connect to multiple exchanges and clearinghouses has come about as the European energy markets have become more fragmented.

EnergyMatch Europe provides a hybrid voice/electronic trading platform enabling financial institutions, hedge funds, energy companies and other market participants to view, post or trade in OTC markets.

EnergyMatch Europe is powered by Trayport, a subsidiary of GFI Group which provides electronic trading software for commodities such as electric power, gas, coal, and carbon emissions.

GFI Group has established a U.S. coal desk which brokers U.S. and European centrally-cleared coal swaps for domestic clients using a single screen. The desk enables U.S. clients to trade U.S. and European centrally-cleared coal swaps using GFI’s Trayport-powered hybrid trading technology.

Although GFI Group operates in many global OTC markets, nearly all its energy business ends up being cleared centrally.

In Europe, trading activity in the two most active coal contracts (API2 and API4) is split among numerous venues, none of which accounts for more than 35 percent of overall volume.

In Europe, ICE Clear Europe clears about 50 percent of European contracts. Clearport and ICE Clear Europe have built out capabilities to clear European and U.S. contracts, respectively. GFI has linkages to Clearport, ICE Clear Europe, and LCH.Clearnet.

Related articles