UBS's first agency IRS execution on NEO | IFR article

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The first IRS executed on UBS NEO agency exeuction platform happened last week.  Perhaps agency execution is off to a slow start but it's a start nonetheless.  Agency execution's success seems to partly depend on each SEFs relative implementation priorities and competitive strategy.

News round up

IFR published an article here (subs. required) describing a trade executed via NEO on TrueEx for an unnamed asset management client and involved standby clearing.  This follows Credit Suisse's first sponsored access swap on Bloomberg SEF a couple of weeks ago - see here and my post on Bloomberg's adding sponsored access to it's platform here.

Standby clearing

"Standby clearing" means that the agency broker / introducing broker commits from the point of execution of the block trade to step into the trade on behalf of the asset manager if there is a clearing failure after the block is allocated and then cleared at the allocation level.

UBS seems to have overcome the operational and legal aspects of this at a first level.  Less clear whether the economics stack up when standy clearing is done at scale.  This will come down to relative size of expected losses from clearing failure compared with anticipated commission revenue.

Competitive dynamics

The article provides some color that Bloomberg and TradeWeb amended their rule books to allow for agency execution but have not made agency execution full functionality / scale capability a top implementation priority.  Hence trueEx being able to "one-up" them for UBS first swap execution on NEO - their multi-asset class agency execution platform across cash and derivatives.

So far the ceremonial trades in the press have been on platforms seen as client to dealer (C2D).  I'm wondering when we will get some significant activity beyond the ceremonial stage.

I also wonder and when we'll see the first agency execution providing client access to dealer to dealer (D2D) / IDB SEF platforms.  

If the latter If it did happen this might have more profound implications.  Firstly, this enables clients to crossover from C2D to D2D venues.  Secondly, it effectively means agency execution brokers compete head on with C2D SEFs for client executions.

I'm not sure yet whether C2D platforms are just prioritizing balancing greatest demand in the short term or whether it helps or hurts them strategically to drag their feet as some have insuinuated they are doing.