Barclays Capital Rolls Out Electronic Credit Default Swaps Trading
First Published Thursday, 10th February 2011 05:48 pm - © 2011 Dow Jones
-Firm makes markets in default swaps referencing 70 individual companies
-Electronic trading takes off amid proposed swaps regulation
By Katy Burne
Of Dow Jones NEWSWIRES
NEW YORK -(Dow Jones)- Barclays Capital announced Thursday it has introduced a service allowing customers to trade credit default swaps electronically.
Credit default swaps, or CDS, are over-the-counter derivatives that allow investors to hedge against losses on corporate or government debt, or to speculate on an issuer's creditworthiness.
CDS used to be traded entirely over the phone using intermediaries, but the market is evolving to an increasingly electronic execution model in line with regulatory calls for more transparency and efficiency in the wake of the financial crisis.
The Dodd-Frank financial overhaul law passed last summer will require a large part of the swaps market to be traded over registered exchanges or alternative electronic platforms called swap execution facilities. Those rules are expected to be finalized by July, and the market is already preparing for them.
"Currently there is little demand from clients to trade CDS or other swap products electronically; liquidity is still thin and brokers provide needed market color over the phone," said Kevin McPartland, senior analyst at research firm TABB Group. "But availability today will leave everyone more comfortable when the big day comes."
Barclays' service is being offered through its proprietary click-to-trade execution platform, BARX, through Bloomberg Professional terminals.
The firm's clients are now able to use BARX to trade CDS on a wide variety of sovereigns and corporate debt, ranging from financial, auto, technology, media and telecom companies to consumer products, materials, utilities, and oil and gas companies. In all, Barclays is making markets in CDS on 70 individual companies.
"Regulation is changing the credit landscape and the market continues to shift towards a model increasingly rooted in electronic trading. We embrace this change and believe it is essential to continue developing products and services that help accelerate this market evolution," said Mike Cattano, head of European high grade trading at Barclays, in a statement.
The CDS market represents 6-8% of the roughly $583 trillion OTC derivatives market, according to the International Swaps and Derivatives Association.
-By Katy Burne, Dow Jones Newswires; 212-416-3084; email@example.com