London Stock Exchange-owned Italian fixed income trading venue MTS will launch a UK-based market for interest rate swaps, as regulatory frameworks for such venues emerge in Europe and the US.
MTS Swaps is expected to go live in Q4 and will let buy-side firms trade interest rate swaps (IRSs) via a prime bank. In a statement, MTS said the venture would help firms boost existing relationships as swaps trading shifts on to exchange-like platforms under the US Dodd-Frank Act and the European market infrastructure regulation.
The venue will support the full trade lifecycle from pre-trade price discovery and execution to post-trade reporting and connectivity to clearing. The platform will support interest rate swap trading via request for competitive quote and executable prices. MTS said trades would be initially cleared by LSE-owned clearing house LCH.Clearnet, but clients would be able to select their clearer of choice in the future.
The venue will be regulated by UK market watchdog the Financial Conduct Authority, although new market rules under pan-European regulatory regime MiFID II will introduce the organised trading facility (OTF) which will capture venues trading swaps.
If MTS Swaps registers with US authorities under recently-released swap execution facility (SEF) rules, it may attract flow as potential SEF operators in the US look to begin operations in coming months.
The venue has secured the support of a range of sell-side banks including BNP Paribas and HSBC, in the form of memorandums of understanding and MTS said these agreements indicated the banks would support the venue from launch.
Jack Jeffery, CEO of MTS, said: “While electronic trading and central counterparty clearing are transforming the wider OTC derivatives landscape, our aim is to evolve trading in fixed income swaps in-line with these developments through the combination of innovative, appropriate technology and our proven expertise in operating electronic markets.
“Launching trading for interest rate swaps is the start of this evolution, enabling us to build a community of banks and buy-side institutions that will benefit from further exciting developments,” he said.
Other banks supporting MTS Swaps through tentative agreements include Commerzbank AG, Crédit Agricole Corporate and Investment Bank, Lloyds Bank Commercial Banking, Societe Generale Corporate and Investment Banking and UBS.