JP Morgan and Tradeweb execute first electronic swaps against gilt futures

Bhas Nalabothula, head of European Interest Rate Derivatives at Tradeweb.

Tradeweb Markets, an operator of electronic marketplaces for rates, credit, equities and money markets, has become the first trading venue to facilitate the electronic execution of Sterling Overnight Index Average (Sonia) swaps against gilt futures for institutional investors.

The transaction was between Capula Investment Management and JP Morgan which acted as a liquidity provider.

Gilt future are deliverable derivatives contracts based on baskets of UK government bonds which enable market participants to hedge or gain exposure to GBP interest rate risk. A swap versus. future transaction, also known as an invoice spread, is a simultaneous purchase/sale of a futures contract against a spot starting or forward starting interest rate swap.

Historically, invoice spreads would be traded using Libor as the pricing basis for the swaps leg of the transaction. However, with the clock ticking for the phasing out of Libor by the end of next year,  UK regulators are pushing for UK debt and derivatives market to accelerate their transition to the Sonia risk risk-free rate (RFR) designated by the Bank of England.

“The launch of Sonia invoice spread trading on our platform adds transparency and efficiency to the execution of these packages,” says Bhas Nalabothula, “Together with JP Morgan, we continue to build on our track record of collaborating with clients to advance electronic trading of interest rate swaps.”

Kari Hallgrimsson, co-head of EMEA rates trading at JP Morgan.

Kari Hallgrimsson, co-head of EMEA rates trading at JP Morgan, adds, “This is an important step in the development of the Sonia derivatives market, and demonstrates our ability to lead the benchmark transition for sterling interest rate swap contracts.”

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