ICAP plc, the world's largest voice and electronic interdealer broker, has launched FRA-Cross its forward rate agreement matching system, in Australian Dollars (AUD).
FRA-Cross was set up in January 2002 to allow swap and FRA traders to align their "reset risk" generated from the daily trading of derivatives. FRA-Cross completed its first successful matching session in AUD at the end of July and now has 17 major banks signed up to use FRA-Cross in AUD. The move into Australian Dollars coincides with a major upgrade of the FRA-Cross system, making it easier, faster and more intuitive for traders to enter their orders.
In common with other major derivatives markets, Australian Dollar swap and FRA traders have a large amount of resets, variable rate cashflows fixed at three and six month BA rates at a future date, which are vulnerable to future rate fixings. According to the Bank of International Settlement, the current outstanding value of all interest rate derivatives in AUD (swaps, FRAs and options) stood at US$488 in December 2003.
A FRA matching system allows traders to remove as many resets as possible, avoiding the costly process of letting resets roll off the trading book. Similarly hedging individual resets by trading each FRA is both time intensive and expensive due to the bid/offer spread that is invariably crossed.
Charlie Sabel, Director at FRA-Cross, said: "We are seeing considerable interest in the FRA-Cross matching system from Australian Dollar derivatives traders with substantial reset risk from their daily trades. We have successfully completed the first matching session in AUD and we expect further runs in the near future as more banks join the system."
ICAP's web based forward rate agreement (FRA) matching system was launched in January 2002 and now has over 300 customers from 90 trading desks at all the major derivatives trading banks. The FSA approved system allows swap and FRA traders to align their reset risk generated from the daily trading of derivatives in EUR, USD, GBP, CHF, CZK, PLN, AUD, SEK, DKK and NOK. The FRA-Cross user, after entering their orders into the fully encrypted website, is able to receive their trades in a matter of minutes and by state of the art straight through processing directly to their own deal capture system, increasing the efficiency of trading through ICAP. Since its launch, over 200 successful matching sessions have been completed on FRA-Cross.