Tom Osborn of Financial News explores how the transition of swap products onto exchanges will pan out. This article follows news that CME Group intends to launch hybrid interest rate swap futures in November 2011.
GreySpark maintains that a transition to electronic swaps trading would be driven primarily by the economics of forced clearing.
Bradley Wood, Partner, argues that the trade-off between building a standardised, albeit imperfect hedge using on-exchange products, versus a costly bespoke hedge using a swap, was not so different to the cost-benefit analysis that buyside firms perform as part of standard risk management practice already.
He moves on to say that for large sophisticated corporates and fund managers, it shouldn’t be too difficult to build a hedge using a basket of different products. GreySpark anticipates a move away from customisation towards greater standardisation.