The banks and brokers using SwapsWire at 60 sites globally to automate OTC derivative trade confirmations are already ahead of the timetable proposed by ISDA (the International Swaps Dealers Association) for the industry.
SwapsWire allows banks to capture and confirm interest rate and credit derivative trades directly with each other electronically, using the FpML (Financial Products Markup Language) protocol. Inter-dealer brokers can send broker confirmations electronically to dealers using the same system and format, meaning deals are captured, confirmed with the broker, and confirmed with the counterparty as part of a single smooth automated process. Deal volume on SwapsWire is doubling every six months and has exceeded a rate of 150,000 transactions per year.
The ISDA Strategy paper sets a target of December 2004 to automate Trade Verification, Trade Confirmation and Legal Execution for Interest Rate and Credit Derivatives. The objectives specify that important trade details should be exchanged and verified on trade date (T+0), confirmations dispatched on T+1, with legal execution taking place on T+5.
The SwapsWire system and protocol allows banks to complete all of these steps within minutes of execution. Over 99% of interest rate swaps confirmed on SwapsWire are fully verified and legally confirmed on Trade date. The vast majority of these are in fact agreed within minutes of execution.
Michael Davie, Managing Director at JPMorgan said, "We have substantially reduced our level of operational risk by using SwapsWire as a core part of our trade capture and confirmation process. The speed of reconciliation with the broker and the counterparty, and the comfort of having a legally binding formal contract automatically in place so quickly is a huge advance."
Andrew Hudis, Managing Director at Goldman Sachs added, "The number of dealers using SwapsWire now means over 70% of this core business area is STP'ed through SwapsWire. The uptake has been very encouraging. Using SwapsWire will be an easy way for other dealers to meet these targets."
In addition to hooking up dealers and inter-dealer brokers, buy-side clients will start using the system to confirm trades with dealers from April.
SwapsWire is also adding a Portfolio Reconciliation service this year. The service can be used for any purpose including back-loading, and trade matching.
Gael de Boissard, Managing Director at Credit Suisse First Boston stated: "Swapswire has already improved our processing capacity for swaps by enabling same-day verification and confirmation. When the ability to reconcile entire portfolios or clear eligible trades in an integrated true-STP environment is added later this year, the industry will have the complete post-trade solution it needs to meet the targets set by ISDA."
An automated link between SwapsWire and LCH.Clearnet's SwapClear service (a central counterparty clearing facility) will go live mid-year. Trades confirmed on SwapsWire can be automatically fed to SwapClear for clearing, meaning banks do not have to support a separate interface and process for clearing.
With SwapsWire linking dealers, voice and electronic brokers, buy-side clients, and clearing services, the post-execution processing of derivatives has never been easier. "A trader can deal, click, and know within minutes that the deal is sitting in his risk position, confirmed and reconciled without another person in the organization lifting a finger. Automation of OTC derivatives has truly come of age," said Chip Carver, SwapsWire's CEO.