IDX Capital, an interdealer broker (IDB) of credit derivatives swaps (CDS) operating in the over-the-counter (OTC) market announced the launch and opening of its operations in New York today, with trading arrangements in place with some of the largest dealers.
Unlike other IDBs that only operate on a voice-brokered basis, IDX Capital is the first IDB to offer the dealer community live, electronic trading of credit derivatives in conjunction with Aggressor-Only commissions via its hybrid trading platform, IDX Live. Through its technology solutions, the company will streamline the process of credit derivatives trade settlement, speed up the completion of trades, the result of which lowers clients' transaction costs.
In the current CDS marketplace, most trades are based on "subjective" price quotes, as opposed to firm, real-time live prices at the moment a trade is to be conducted. IDX Capital has chosen to pioneer the method of using only executable firm pricing for its trades via IDX Live, its electronic platform which will produce a broader view of current market pricing. These methods together will boost market participant confidence and provide the CDS market with the greater recognition it deserves.
IDX Capital will be the first IDB to use an Aggressor-Only model with regard to the payment of brokerage fees for a CDS trade. The Aggressor-Only model requires that the party that initiates the trade pay the broker's fee - as opposed to both sides paying, which is currently the norm in credit derivatives transactions. The Aggressor-Only model has been used, and has gained acceptance, in other sectors of the market-particularly in the areas of equities, asset-backed securities and fixed-income instruments. By offering this model, IDX clients will save at least 50% on their current brokerage bills.
The new company will be led by, Chief Executive Officer Jeffrey Hunter, formerly of Donaldson Lufkin and Jeanerette (DLJ) and OANDA, where he led the funding and deployment of FXTrade, an online foreign exchange market maker.
Commenting on the launch of IDX Capital, Jeffrey Hunter said, "The credit derivatives market is one of the fastest growing capital markets globally. In 2004, it grew at more than 200 percent to nearly $8.5 trillion. In the first half of 2005, the market has already grown to $12 trillion and estimates state the CDS market could grow at 50-to-75 percent annually for the next three years. Given the size and opportunity of the credit derivatives market, we believe that a need exists for a radical, iconoclastic player that will bring new technologies, new ideas, and new efficiencies to bear. IDX Capital is that player. IDX's technology, deep understanding of the market, people, and our ability to lower costs and ease trade processing will allow us to strategically and efficiently meet the needs of the CDS broker community."
IDX Capital's Trading Platform - IDX Live
In order to offer its clients the Aggressor-Only brokerage fee model and processing solutions, IDX Capital has acquired technology to work with IDX Live.
In addition to creating immediate savings for its clients and for some, allowing them to post prices for no fee, the combined IDX Live/Aggressor-Only platform will provide the following benefits:
- Aggressor-Only commission model;
- Lower cost per transaction for end-users allowing for greater diversification and portfolio optimization;
- More efficient system that will lead to trades being settled more quickly, and minimize risk associated with unsettled trades;
- Use of real-time, immediately tradable "firm" or actual prices.
Through IDX Live, IDX Capital will provide trade processing solutions that will considerably streamline the credit derivative trade settlement process and lowers clients' back-end transaction costs. Presently, the entire trade cycle, from initiation through settlement, can take from months to days to complete. The IDX Live trading platform will offer real time trade validation and confirmation to the middle and back offices of IDX Capital's clients. IDX Live's third party connectivity is agnostic and easily integrates directly into any number of systems that a client may choose.
Commenting on IDX Capital's technological platform, Mr. Hunter said, "Despite the vast changes occurring in the industry, market dealers remain central to the CDS market. Nevertheless, new and disruptive technologies are changing the traditional methods through which all securities are traded. IDX Capital's paradigm-shifting business model is specifically positioned to impact and enhance the 'voice' brokered interdealer OTC market of CDS. Through IDX Live, IDX Capital's brokers will work in conjunction with a live screen to offer its clients both immediate trade feedback and market color during the course of the trading session. Such a hybrid approach ensures that the IDX Capital customer is properly serviced through the trade cycle."
He continued, "As the fast growing CDS market rapidly evolves, clients' needs are shifting to favor greater transparency, which can only be achieved through live or "firm" prices - as opposed to the current use of "subject" prices, which are ostensibly for information only purposes, not for trading. This broad market view of executable prices is at the core of what IDX is offering its clients. Addressing the issue of inefficient and expensive trade settlement processes has been an ongoing market wide concern, at times as nearly $1 trillion of the $12 trillion CDS market has been unsettled. IDX Capital will add value directly to its clients by improving the trade settlement issue head on."
Mr. Hunter concluded, "As CDS trading volume continues to explode, our clients, embrace technological and cost efficiencies, to provide a broader and more accurate view of the market and more efficient trade processing, while maintaining a high level of efficiency with our voice and electronic trading. Overall, by addressing the market's needs directly, IDX is looking for nothing less than to become the market's single most important independent broker- dealer."