Tradeweb Jumps into Swaptions


Electronic trading venue operator Tradeweb has dipped its toe into rates volatility trading between dealers and clients with the start of swaptions trading on its TW SEF, company officials announced today.

Initial trading is limited to vanilla versions of USD-denominated interest rate swaptions, according to Colm Murtagh, head of US institutional rates at Tradeweb.

Colm Murtagh, Tradeweb

“As we go forward, we plan to offer different types of packages of swaptions and ultimately to have the ability to unwind older swaptions as we build out the platform,” he said. “But to start, it’s plain vanilla USD with straightforward structures.”

Minneapolis-based asset manager Garda Capital Partners was the first to trade via electronic request-for-quote near the end of the third quarter.

There are eight dealers currently on the platform and another four going through the onboarding process according to Murtagh. “All have a major presence in the swaptions market,” he said.

Client requests for greater efficiency, and not regulatory mandates, drove Tradeweb to develop support for swaptions trading.

“Electronic trading has increased our operational efficiency with vanilla rates derivatives, and it is a logical step to benefit from the same advantages with our swaptions business, said Sean Hu, a portfolio manager at Garda Capital Partners in a statement.

The Commodity Futures Trading Commission does not mandate that swaptions trade on SEFs currently, so swaptions are OTC products, explained Murtagh. “They are processed on the SEF, but are not required to be traded on SEF. By electronifying the trading workflow, we’re bringing greater efficiency to the swaptions market on Tradeweb.”

The ability to send out five electronic requests for quotes simultaneously without needing to juggle individual phone calls or private chats makes the trading process much more manageable for clients, according to Murtagh.

Swaptions trades made on the TW SEF are non-cleared bilateral OTC transactions but leverage the SEF’s automated audit trail and existing integration with risk management and post-trade platforms and processing.

As TW SEF gathers trading momentum in the trading of vanilla swaptions, Murtagh expects Tradeweb will support additional flavors of swaptions in the future. “We’ve started in the US market, which is the largest,” he said. “But similar to what we have done across Tradeweb historically, we will broaden the offering to more currencies, and to reach our global client base“

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