Swaps: Has the Time Come for Electronic Trading?

September 21, 2004


New York, NY, USA September 21, 2004


Celent predicts that over 30 percent of short-dated interest rate swaps will trade electronically by the end of 2006. Medium- and long-term swaps, however, will remain ill-suited to electronic trading for the foreseeable future.

The global interest rate swaps (IRS) market has experienced significant growth in recent years. The total notional outstanding for the IRS market has increased from US$36 trillion in 1998 to nearly US$111 trillion in 2003, and Celent predicts that this figure will reach US$125 trillion by the end of this year. The success of electronic trading in both the equity and fixed income markets prompted many observers to conclude that interest rate swaps would follow suit and migrate to electronic trading platforms.

In response, several platforms were rolled out that promised to make the swap market significantly more efficient. Initial results were less than encouraging: the majority of these initiatives failed to attract significant interest and folded soon after inception. The past 18 months have seen a resurgence in electronic swap trading, however. Three new participants have since entered the fray, with two additional entrants expected by the end of this year.

In a new report, ?, Celent examines the growth of the interest rate swaps market as well as key trends and strategic issues affecting the development of electronic swap trading platforms. Challenges to market-wide adoption, such as credit, liquidity, product complexity, and integration costs, are discussed in the context of emerging e-brokerage strategies. The report also profiles several platforms, analyzing their business models and potential impact on the emerging electronic swaps industry.

"Traders remain skeptical about electronic swap trading platforms," says

Harrell Smith, analyst in Celent’s Securities and Investments group and author of the report. "Although the benefits of electronic trading are clear, market entrants face numerous obstacles in their attempts to gain wider acceptance among dealers and client firms alike. Firms that have pursued tightly focused, short-dated rollout strategies stand the best chance of survival."

Celent asserts that while the most standardized medium- and long-term swaps will eventually migrate to electronic brokerage systems, this transition is unlikely until electronic platforms have demonstrated their value in the more liquid and undifferentiated short-dated markets. The market for European Overnight Index Average swaps (EONIAs) is the most standardized and liquid segment of the interest rate swaps market and is gradually moving to a predominantly electronic trading model. Currently, 10–12 percent of the EONIA market is traded electronically, and Celent expects this figure to increase to 35 percent within the next two years. In contrast, voice trading will continue to dominate the market for longer-dated swaps: Celent predicts that only 5 percent of vanilla interest rate swaps will be traded electronically by the end of 2006.

The vendors evaluated in the report are ATFox, Blackbird, e-Mider, Reuters Matching for Interest Rates, Barclays’ BARX platform, Swapstream, and SwapsWire.

The 51-page report contains 21 figures and four tables. A

Table of contents is available online.

of Celent Communications' Institutional Securities & Investments research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.


Send mail to info@celent.com with questions or comments about this Web site.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

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Michele Pace
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Yumi Nagaoka
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Table of Contents


New York, NY, USA September 21, 2004

Swaps: Has the Time Come  for Electronic Trading?

Return to report Abstract


  Market Size 5
  Product Types, Definitions and Use 7
  Market Characteristics 10
  Segmentation 13
  Market Participants 14
  Overview and Strategic Issues 17
  Electronic Trade Volumes 19
  ATFox 23
  Blackbird 26
  e-Mider 28
  Reuters Matching for Interest Rates 31
  BARX (Barclay's Plc) 33
  Swapstream 35
  Swapswire 38
  Summary Comparisons 43
  New Entrants 44
  Competition 44



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