Chapter 20
The STP Flow of Swap and other OTC Drivative Trades
20.1 INTRODUCTION
The examples provided in this chapter are for interest rate swaps and currency swaps, but the text also refers to the other instrument types that were introduced in section 5.3.2 if and where there is variation in the trade flow.
20.2 ORDER PLACEMENT
Orders may be placed by any of the following means:
- By researching best bid and offer prices and telephoning a bank direct
- By researching best bid and offer prices and sending orders through hub and spoke services such as Omgeo Oasys or Autex
- By using any number of Reuters pre-trade services. Reuters is a major force in FX pre-trade services. Because the world’s major FX market makers publish their prices on its services it is able to act as an electronic money broker, finding competitive quotes. It also provides analytical tools and conversational dealing
- By using the services of a money broker
20.3 ORDER EXECUTION
Orders are normally executed as principal by market makers.
20.4 TRADE COMPONENTS AND AMOUNTS
The following is an example of a currency swap that was originally quoted in section 5.3.2.
On trade date 29 January 2008 the USD/GBP exchange rate is 2.00.
Banks A and B agree to swap the 5% fixed rate income streams on USD 100 000.00 with the floating rate LIBOR income streams on GBP 50 000 000 for two years from 1 February 2008. Bank A pays Bank B USD at 5%, while Bank B pays Bank A GBP LIBOR.
The trade components and amounts, from Bank A’s ...
