Despite being one of the largest and most critical markets in global finance, interdealer interest rate swaps (IRS) have remained an outlier in the digital transformation sweeping through trading desks. “It’s the biggest market no one really knows about,” said Christopher Jonns, Head of Markets at RTX and a veteran of the swaps brokerage world.
Unlike the visible evolution in equities or FX trading, the IRS market—especially the interdealer segment—has lagged behind in terms of automation. Voice remains dominant, driven in part by the complexity of products and the reliance on long-standing relationships. “The rates market is complicated,” Jonns explained.
“There are a lot of moving parts and non-standard structures—and that’s why the phone has remained so prevalent. Traders want flexibility. They want to be able to shift quickly. Until very recently, there was no viable electronic alternative,” he told Traders Magazine.
Market structure plays a central role in this dynamic. Dealers hedge their client-side risk in the interdealer market, but the structures rarely match up cleanly. “There’s a dealer-to-dealer market and a dealer-to-customer market, and they don’t cross-pollinate,” Jonns said. “That mismatch is why the markets have never fully combined, and why automation has been slower.”
In late 2023, RTX officially launched its platform after a long build and vetting process. Initially, the firm entered the market with participation from just four banks, securing only a small fraction of the daily flow. “We’d come away with maybe one trade in a market where 200 to 300 trades happen each day,” Jonns said. “But the traders were patient. They understood the lift involved and were willing to work with us as we shaped the product around their needs.” Since that launch, adoption has grown meaningfully, with over 18 banks now active on the platform. The experience also highlighted the central lesson of this transformation: platforms cannot impose change on the trading community—they must co-develop with it.
Regulatory changes in the wake of the financial crisis, including swap execution facility (SEF) mandates and most-favored-nation pricing rules, were expected to drive innovation—but they fell short of transforming the business. “Brokerage hasn’t really changed in 15 years,” Jonns noted. “When SEF regulations came in around 2015, people thought that would be the moment. But the tech wasn’t there. It was clunky, not web-based, and compliance teams didn’t want Java or scripts running on desktops. So nothing moved.”
While compliance departments once posed a major hurdle to adopting new technology, that dynamic is shifting. Banks are now under pressure to reduce costs, improve trade surveillance, and execute more efficiently. “Cost is a huge driver,” said Jonns. “When you’re on the phone and things get busy, you’re shouting trades to people down the desk, and those get input manually. If they’re also busy, suddenly you’re ten minutes behind, running massive rate risk for a global bank. That’s not acceptable anymore.”
Despite that pressure, progress toward electronic trading in IRS remains limited. The notable exception is Dealerweb’s “sweep” product, which allows participants to input risk preferences against a published curve and match trades in bulk. “It’s electronic, yes,” Jonns said. “But beyond that, there’s not much. We’re still in a market dominated by voice. Any market share an electronic platform gets today is hard-earned, because they’re going up against 20-year relationships and deeply embedded behavior.”
In terms of competition, new entrants have been scarce. “We haven’t seen any new players enter this space in any meaningful way,” he said. “Some prop firms have exposure through other instruments, but on the interdealer swaps side, it’s very limited. The newest participant of note was probably Citadel, and that was on the banking side.”
The shift from LIBOR to risk-free rates like SOFR has, surprisingly, not disrupted market function. “Structurally, the market adapted well,” Jonns observed. “SOFR trades just fine. In Europe, you still have Euribor, so you end up with more hedging complexity, but overall, the transition has been smooth.”
Increased complexity is evident not only in the instruments themselves, but in how risk is managed across products. “Butterfly trades, switches, swap spreads—these are all standard in the interdealer market,” said Jonns. “They’ve always been liquid. Banks manage the curve using these products, and with more sophisticated risk positioning, the infrastructure needs to keep up. That’s one reason we’re seeing incremental interest in electronic tools that can handle more complex order logic.”
Cross-asset integration is another pressure point. IRS doesn’t exist in isolation; it’s deeply linked to futures and FX markets. “You’re seeing more activity in swap futures, particularly from Eris,” Jonns said. “They’ve made margining more efficient, and that draws in prop shops and banks alike. But any large trade in swap futures has to be hedged in traditional swaps—usually through a swap spread—so the markets are tightly interlinked. It’s another reason why execution infrastructure needs to evolve.”
Despite the conservative pace of change, Jonns is optimistic. “The banks want change. Traders want cost reduction and efficiency. But procurement cycles are long. What used to be one manager signing off on a new voice broker is now a year-long process through compliance, tech, legal, and governance. That slows everything down.”
He added that the key to future adoption is collaboration with the trading community. “You can’t build something in isolation and expect people to use it. If it doesn’t fit their eye—if they’re not comfortable with it—it won’t get traction. You’re dealing with people moving serious risk every day. The tools have to work the way they do.”
Looking ahead, the modernization of the IRS market will likely be uneven. Markets like Europe, where notional volumes are even higher and product complexity is greater, could prove to be fertile ground for further innovation—though not without challenges. “In Europe, a single hedge could involve four trades,” Jonns noted. “You’ve got to deal with Euribor basis, CME vs. Eurex margin offsets, the Bund, and the rate itself. That puts enormous pressure on fees and execution efficiency. It’s a prime case for automation—but also a hard one to crack.”
For now, the voice market continues to dominate, but its grip is loosening. A generational turnover in trading desks, combined with stricter regulatory demands and a growing appetite for efficiency, suggests that change is no longer a matter of if—but when. As Jonns put it: “It’s a heavy lift. But the appetite is there. And once a few key players shift, the rest will follow.”
