Aiming to capitalize on new regulations that will require derivatives to be traded on an exchange, State Street Corp. in Boston announced Wednesday that it is launching a new electronic platform for over-the-counter swaps.
The custody bank said in a news release that its swap execution facility, branded SwapEx, would provide end-to-end service on trades that "reduces operational risk through…the many stags of derivatives processing" including execution, clearing, collateral management, transaction cost and risk reporting and reconciliation of positions."
State Street is among the first banks to unveil definitive plans for a swap exchange facility, though others are expected to follow suit as new derivatives rules are implemented in the U.S. and Europe later this year. The Dodd-Frank Act and similar financial reform efforts in Europe will mandate that swaps currently traded over the counter between two parties must be cleared through an electronic trading platform.
"The derivatives market is in the midst of significant change as it moves away from a bilateral trading model to a centrally traded and cleared environment that offers greater price transparency, liquidity and enhanced risk management," said Clifford Lewis, executive vice president and head of State Street's electronic exchange platforms. "State Street's core competencies as a custodian…make the expansion of our derivatives solution to include a swap execution facility a natural extension of our business."
State Street said it plans to file a registration for the facility with the U.S. Commodity Futures Trading Commission when the application window opens later this year.
