Market operator Tradeweb has registered a four-fold rise in credit default swap indices (CDX) trading volume in a week, as market participants prepare for new OTC derivatives regulation.
From 18 October, Tradeweb has let buy- and sell-side clients access the same streaming bids and offers from dealers on its CDX platform, reducing traditional barriers to trading, which has caused a spike in trading activity.
More than US$16 billion in CDX notional volume has been traded on the platform over the last week, as many derivatives markets prepare to shift from OTC trading of to centrally cleared and similar exchange-traded products.
“We looked at the unique characteristics of the CDX market and evolved the rules of engagement for Tradeweb’s marketplace to provide the best experience for all participants,” said Lee Olesky, CEO, Tradeweb.
The US Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) are presently finalising the new derivatives trading rules as part of the Dodd-Frank Act, which is in part intended to enhance transparency in OTC derivatives trading in light of the 2008 financial crisis.
Other venue operators adjusting their products ahead of the new trading rules include the IntercontinentalExchange (ICE) and the CME Group, which operates the world’s largest derivatives exchange.
ICE will offer exchange-traded futures and options contracts based on corporate credit default swaps (CDS) indices, which will be available in the first quarter of 2013. The CME will offer trading in a swaps futures contract from next month.
A move to exchange-traded products that replicate swaps exposures has been driven largely by concerns over reporting requirements and other costs likely to incurred under Dodd-Frank by high-volume swaps traders, incorporating banks and some large asset management firms. Many buy- and sell-side firms are seeking to stay below the threshold defined by the CFTC for becoming major swap participants or swap dealers, while regulatory bodies have delayed reporting requirements for these categories.
Firms set to register as major swaps participants or swaps dealers will have until 31 December to begin reporting, as part of a raft of last-minute amends published by the CFTC on 12 October in a series of no-action letters.