As the vast US derivatives industry prepares for the mandated trading of swaps on regulated platforms, new approaches that follow a pattern seen in equities and futures transactions are set to become a more frequent part of the fixed income market.
Bloomberg announced on Wednesday that its Swap Execution Facility (Sef) will now support so-called sponsored access, whereby a clearing broker allows an investor to directly buy or sell a swap on a Sef.
Rather than sign rule books with a number of competing Sefs, some investors are expected to rely on the sponsored access model to transact swaps.
It comes as mandated swap trading kicks into gear next week.
Since a number of Sefs registered and gained approval from the US Commodity Futures Trading Commission last October, many customers have signed up and transacted swaps. But next week, all standardised swaps must trade via these platforms.
“The training wheels come off,” said Ben Macdonald, president of Bloomberg’s Sef, which has signed up more than 600 firms and executed more than $1tn of notional volume. He said providing sponsored access was another way to entice customers to use its Sef.
“By providing market participants access to our Sef through an agency model, much like the futures market has done for years, we offer our clients greater trading flexibility and efficiencies,” said Mr Macdonald.
Bloomberg’s Sef facilitated the first sponsored access trade with NISA Investment Advisors, supported by its clearing broker Credit Suisse Securities trading with Goldman Sachs.
“For our firm and clients, sponsored access is the preferred execution approach for accessing the swaps market,” said Ken Lester, managing director at NISA. “Bloomberg was the first Sef to provide sponsored access capability to NISA.”
John Dabbs, head of Credit Suisse’s US Futures Commission Merchant Group, said: “Many clients are planning to utilise this structure to prepare for next week’s made-available-for-trading deadline.”