How to game a Sef: Banks fear arrival of arbitrageurs

Some banks are scared to make prices on platforms that offer both an order book and request-for-quote trading – other users might be able to game them by using the two approaches in conjunction, the banks claim. The result could be that dealers stop being 24-7 liquidity providers. Tom Osborn reports

It’s a tactic beloved of hagglers the world over – claiming an item can be bought more cheaply elsewhere – but imagine how much more powerful and convincing it would be if the prospective buyer secretly had the power to write some of those other price tags, effectively setting market value before opening negotiations.

Some dealers claim they are facing this risk when making markets on swap execution facilities (Sefs). As the walls separating price-makers and price-takers are torn down by the