Tradeweb LLC, the bond- and derivatives-trading network partly owned by Wall Street’s largest banks, created an electronic method to reduce failed trades in the agency mortgage-bond market two weeks after the volume of incomplete agreements reached record highs.
BlackRock Inc., Credit Suisse Group AG and Goldman Sachs Group Inc. collaborated with Tradeweb on the technology, the New York-based firm said today in an e-mailed statement.
The system will allow brokers’ clients to “pair off” trades with different dealers, “enabling more efficient resolution of round-robin fails between dealers,” according to the statement. Tradeweb says it runs the industry’s largest execution venue for buying and selling in the so-called To Be Announced market.
Primary dealers’ failure to deliver or receive mortgage bonds guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae at agreed-upon times totaled a record $2.37 trillion in the week ended Nov. 17, compared with a weekly average of $150 billion in the five years through 2009, Federal Reserve data show. The tally repeatedly counts failures that linger for multiple days.
The volume of incomplete deals jumped after the U.S. central bank purchased $1.25 trillion of securities in the $5.3 trillion market in a program designed to bolster the economy and keep short-term interest rates near zero.
Next Step: Penalties?
In July, an industry group that advises on transactions in U.S. debt recommended measures to cut incomplete agreements. Analysts including those at Credit Suisse and Deutsche Bank AG have said in reports that penalizing sellers who fail to complete trades may be the next step in reducing them.
Tradeweb is a partnership of Goldman Sachs, Deutsche Bank, Credit Suisse, JPMorgan Chase & Co., Morgan Stanley, Citigroup Inc., Bank of America Corp., UBS AG, Royal Bank of Scotland Group Plc, Barclays Plc and Thomson Reuters Corp. Thomson Reuters and Tradeweb compete with Bloomberg LP, the owner of Bloomberg News, in selling financial and legal information and trading systems.
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