Tradeweb Markets Inc (NASDAQ:TW), a global operator of electronic marketplaces for rates, credit, equities and money markets, today announced it has become the first trading venue to facilitate the electronic execution of SONIA swaps against Gilt futures for institutional investors. The first electronic transaction was completed on the Tradeweb interest rate swaps platform between Capula Investment Management and J.P. Morgan as the liquidity provider.

Gilt futures are deliverable derivatives contracts based on baskets of UK government bonds, and enable market participants to hedge or gain exposure to GBP interest rate risk. A swap vs. future transaction 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 the London Interbank Offered Rate (LIBOR) as the pricing basis for the swaps leg of the transaction. However, as LIBOR is set to lose its regulatory support by the end of 2021, UK debt and derivatives markets are accelerating their transition to the Sterling Overnight Index Average (SONIA), the 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,” said Bhas Nalabothula, Head of European Interest Rate Derivatives at Tradeweb. “Together with J.P. Morgan, we continue to build on our track record of collaborating with clients to advance electronic trading of interest rate swaps.”

The shift to alternative rates is well underway, but with LIBOR being embedded in most firms’ operating models, there are still many challenges facing financial markets. In the GBP space, Tradeweb is in close collaboration with institutions in the sterling swaps market to ensure continued progress and innovation towards electronic SONIA trading. In March 2020, SONIA became the benchmark for GBP interest rate derivatives on Tradeweb’s interest rate swaps platform.

Tradeweb has also been working with market participants to offer additional tools and data that will help move sterling swaps trading to SONIA. For example, jointly with J.P. Morgan, Tradeweb has been developing solutions that address the market’s needs, including the launch of electronic execution for the actively-traded SONIA swap vs. gilt future packages.

Tradeweb is focused on bringing further liquidity and transparency to RFR markets globally across currencies, including USD SOFR and EUR €STR. Clients are able to send trade enquiries to multiple dealers, putting them in competition to price orders via the request-for-quote (RFQ) or request-for-market (RFM) protocols. They can also upload their existing IBOR portfolios directly into Tradeweb’s list trading tool and convert them into RFRs in a streamlined process that helps them achieve best execution.