ICAP has applied to operate a US electronic swaps trading venue overseen by UK regulators, stepping up its moves to address sweeping US laws governing the over-the-counter derivatives market.
The UK interdealer broker wants to turn its BrokerTec fixed income trading platform into a venue mandated to meet US swaps rules from London, according to documents filed with US and UK regulators earlier this month.
The move, involving one of its biggest trading units, comes amid growing concerns that the vast off-exchange derivatives market is beginning to fragment along regional lines following the introduction of tough new US legislation.
ICAP acts as a middleman in the market, moving large and illiquid blocks of assets such as swaps between buyers and sellers, often by telephone. To strengthen the swaps markets against systemic risk, US authorities have mandated into existence new electronic venues known as Swap Execution Facilities. Banks, brokers and investors have spent much of the past four months scrambling to understand and meet new daily trading and compliance procedures.
But many non-US financial institutions have been worried by guidance issued by the Commodity Futures Trading Commission on cross-border regulation, and see the incoming rules as tantamount to an overseas land grab by the CFTC.
A recent industry survey suggested most trading on Sefs in their four-month existence had been by US dealers, with European-based dealers wary of trading in the US market.
More than 70 per cent of interest rate swap volume in the final three months of 2013 was US-dollar denominated business, according to the International Swaps and Derivatives Association, a trade body. ICAP wants a London-based Sef for customers who want access to the liquidity of a Sef from Europe.
ICAP’s BrokerTec trades G7 public debt securities, with US dollar swaps trading among its profitable areas. The securities also remain largely outside the scope of the US Dodd-Frank Act.
ICAP has filed papers at UK Companies House to rename its BrokerTec business ICAP Global Derivatives Ltd. It is intended to be US-registered and compliant with US rules, while remaining under the jurisdiction of the Financial Conduct Authority, the UK regulator. It plans to trade US dollar, euro and sterling interest rate products, with trades cleared via the Chicago Mercantile Exchange and LCH. Clearnet. Its chief executive will be John Nixon, the head of its Americas business.
Trading on Sefs is due to become mandatory in mid-February and ICAP already has approval for a US-based Sef, which will be run by Laurent Paulhac, a former CME Group executive.
Last year Michael Spencer, chief executive, confirmed ICAP was considering applications for both a US and a UK entities.