By Katy Burne
Disruptive Swap Execution Platform Taps New Officers
NEW YORK - (Dow Jones )- Javelin Capital Markets LLC, an electronic trading venue for interest rate and credit default swaps backed by a consortium of dealers and private equity firms, has tapped Jamie Cawley as its Chief Executive and Chris Augustin as its Chief Information Officer.
Augustin was most recently Chief Information Officer of Merrill Lynch, before it was acquired by Bank of America, and Cawley was the founder of IDX Capital, a New York-based electronic trading platform for credit default swaps between dealers. IDX is seeking a new chief executive.
Javelin, whose backers could not be determined, is expected to launch in the coming months and to register as a swap execution facility, a new type of trading venue created by the Dodd-Frank Act. SEFs, as they are now known, will be an alternative mode of execution for users of over-the-counter derivatives who don't wish to trade the privately negotiated contracts on public securities exchanges.
The Commodity Futures Trading Commission estimates that as many as 30 to 40 could register as swap execution facilities. Trades done on SEFs will be reported to regulators and data warehouses as they are on exchange. If a swap is standardized enough to be cleared, it must be executed across one of those platform types under the law. Separate confirmation facilities will process the trades after execution and into central clearinghouses.
Javelin cleared a $6 million pilot interest rate swap with the International Derivatives Clearing Group, an interest rates clearing platform, in August. Its founders are said to be platform-agnostic, so will connect to whichever clearinghouse a customer wants to use, so long as that clearinghouse accepts the trade.
"Our mission is to be consistent with the core principles of the Dodd-Frank Act and we are committed to pre-trade transparency and open access and fair dealing of OTC derivatives trading," said Cawley. "Javelin's approach is one of inclusivity not one of exclusivity."
Other examples of platforms looking to be eligible for SEF status include Tradeweb, Bloomberg and MarketAxess, whose execution platforms run on request-for-quote models, whereby a customer can receive quotes from multiple dealers without those private quotes being revealed to other customers. Another SEF exclusively for equity swaps, eDeriv, also is being developed.
Regulators are still working on the definition of a SEF and what the rules for them should be, particularly with respect to how and when prices are shown, and trades reported. Some market participants believe that if customers can't compare their set of quotes with others in the marketplace before executing their trade it won't be in the spirit of Dodd-Frank, which aims to bring down costs for end-users of derivatives.
Single-dealer platforms, such as Deutsche Bank's Autobahn service, generate quotes for customers individually. Since the customer is not able to compare prices from multiple dealers over those proprietary systems, they could be in jeopardy if the new rules for SEFs disallow execution methods that keep quotes private.
Interdealer broker platforms, which match derivatives been dealers both electronically and over the phone, are also seen as future SEFs, but they may ultimately need to allow nondealer customers into their trading platforms so as to be compliant with the new rules. Interdealers may also have to watch how hybrid trades, involving a phoned-in order that is keyed into an electronic system, are reported so that they get the same treatment as electronically executed trades that are reported in near real time.
Javelin will be an electronic-only platform with technology that ensures users the same economic terms as they are used to with existing privately negotiated contracts. At least one other trading platform, an exchange called Eris backed by five proprietary trading firms, is planning to convert swaps to futures to achieve a similar end.
-By Katy Burne, Dow Jones Newswires; 212-416-3084; email@example.com