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  • Tradeweb Supports U.S. and European OTC Regulation Initiatives

    07/03/2009

    Tradeweb is supportive of both the European Commission's Communication on OTC Derivatives Market Regulation, and the US Treasury Department's recent proposals on the same issue. In particular:

    • Both Commissioner McCreevy and Secretary Geithner have separately stressed the need for greater transparency and competitionby encouraging access to markets - particularly through electronic trading systems and exchanges. As Secretary Geithner said: "Market efficiency and price transparency should be improved in derivatives markets by moving the standardized part of these markets onto regulated exchanges or regulated transparent electronic trade execution systems."*

    • The Commission is clear that OTC trading will benefit from moving to regulated e-platforms. These platforms are able to balance the market's need for real OTC liquidity and innovation with the regulator's desire for transparency and risk reduction

    • Regulators in Europe and the US are looking to the creation and use of central counterparty (CCP), clearing mechanisms for standardized OTC

    • The focus of regulation may be seen to be the clearing of OTC derivatives - both the Commission and the US Treasury stress the value of multiple points of trading access to these CCPs. There is no expressed intention to mandate or limit specific trading venues, but rather an understanding that continued transparency and competition are best delivered to the market if the market itself is able to define where trading efficiency lies

    • Tradeweb believes that the proper solution for the OTC derivatives market is in this access for multiple regulated trading systems to the regulated CCPs. This strikes the right balance between fixing systemic problems, encouraging market innovation, and preserving effective choice. Further, the call for multiple points of access into the CCPs means that regulated electronic platforms can compete to offer transparency, connectivity and risk reduction as they do today

    The Commission recognises these elements thus:

    "A system based on competition between different trading venues (OTC, exchanges and MTFs) is also advantageous in terms of market efficiency as long as it subjects all venues to adequate transparency and organisational requirements that ensure fair competition." **

    and

    "In principle, for standardised derivatives that are cleared by a CCP, the next logical step would be for trading of these contracts to take place on an organised trading venue where prices and other trade-related information are publicly displayed such a regulated market or a multilateral trading faciltiy (MTF) subject to transparency requirements."**

    • In order for the markets to function efficiently, and for its participants to access appropriate levels of liquidity, trading mechanisms for OTC derivatives should reflect the particular needs and characteristics of the market and the institution, while providing the levels of transparency outlined by the European Commission and the US Treasury department.

    • Tradeweb's electronic trading platform already offers liquidity, efficiency and transparency. Within the existing - and expanding - network of dealer-to-client business transacted through Tradeweb there can be found the resilience, robustness, accuracy, transparency and reporting functionality that McCreevy and Geithner highlight as the desired and necessary framework for OTC Derivative trading

    • Tradeweb is embedded in the very structure of the OTC markets and reflects "best practice", while also providing the advantages of price transparency, access to effective and efficient liquidity, a complete automatic audit trail, and connectivity to clearing and settlement processes

    • Tradeweb has been offering for more than ten years, transparency across every part of the trade cycle - Price Discovery, Execution, Straight Through Processing (STP) - that has now become the focus of the Regulators' attention. Moving a trade from an electronic platform to record and clear (through a regulated CCP or other) is extremely efficient. Tradeweb offers effective connectivity to central clearing and/or settlement systems, as well as being able automatically to update Risk Management and Portfolio Management Systems for both investor and dealer

    About Tradeweb and Its OTC Derivatives Offering:

    • Tradeweb distributes real-time trade-validated bid and offer levels through the Thomson Reuters network
    • Tradeweb has been a leading global provider of online marketplaces for rates, credit and money market products for over 10 years
    • Tradeweb is regulated in the US as an Alternative Trading System, in the UK as a Multilateral Trading Facility and in Japan as a securities house
    • Tradeweb provides a range of trade processing services, including trade matching and allocation, as well as connectivity to third-party providers of settlement and confirmation services
    • Tradeweb launched its electronic OTC derivatives platforms in 2005
    • Since launch, Tradeweb has experienced 40% CAGR in global interest rate derivatives volumes
    • Tradeweb continues to develop and refine its trading platform and protocols for OTC derivatives adapting to the way the markets work in practice and adding efficiencies
    • Over $4 trillion of OTC derivatives have been traded on Tradeweb - more than 36,000 trades
    • More than 125 leading institutional clients are currently trading OTC derivatives on Tradeweb
    • The leading participants in the OTC derivatives markets provide liquidity to clients on Tradeweb, including: Barclays Capital, BoA/Merrill Lynch, BNPP, Credit Suisse, Citi, Deutsche Bank, Dresdner, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, Natixis, RBS, Société Générale, UBS and shortly, Mitsubishi UFJ Securities International
     

     

    Letter from UST Secretary Timothy Geithner to The Honourable (Senator) Harry Reid, 13 May 2009

    ** Communication from the European Commission: "Ensuring efficient, safe and sound derivatives market", 3 July 2009

     

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