London's ICAP next to plan U.S. swaps trading platform

By Douwe Miedema

WASHINGTON, Sept 3 (Reuters) - Britain's ICAP Plc (LSE: IAP.L - news) said on Tuesday it planned to set up a trading platform for swaps, satisfying a requirement from regulators who are rewriting the rules for the derivatives that helped cause the 2007-09 credit crisis.

Wall Street banks trade swaps in privately negotiated deals, largely over the phone, through a handful of brokers such as ICAP, but regulators want to shed more light on the lucrative $630 trillion market.

ICAP said it had filed an application for a swap execution facility, a type of trading platform not unlike an exchange, with the Commodity Futures Trading Commission, the U.S. derivatives regulator.

The application had long been expected because of ICAP's dominant role as a swaps broker. Other such firms include Tullett Prebon (LSE: TLPR.L - news) , GFI and Cantor Fitzgerald and a few smaller ones.

They are called interdealer brokers because they broker trades between large Wall Street banks, which are also known as dealer banks, or dealers.

New rules that are part of the 2010 U.S. Dodd-Frank law meant to overhaul Wall Street after the financial crisis will put an end to privately negotiated swaps trading.

Deals must now take place through the same type of order books that stock exchanges use, or by requesting quotes from at least two market parties, a number that will go up to three after a phase-in period.

The swaps market is dominated by large banks such as Citigroup Inc (NYSE: C - news) , Bank of America Corp, JPMorgan (LSE: JPIU.L - news) Chase & Co and Goldman Sachs Group Inc. Virtually all trading volume between these banks takes place through the brokers.

But the new rules by the CFTC (Taiwan OTC: 1586.TWO - news) have given the clients of the banks a chance to trade in the swaps themselves for the first time, and this has attracted a raft of new firms hoping to break open the banks' monopoly.

Firms such as Bloomberg LP; TradeWeb, which is majority-owned by Thomson Reuters ; and MarketAxess have also all applied to set up a swap execution facility.