Tag Archives: CFTC

Gloves Come Off at SEFCON V

The era of good feelings definitely is over for the over-the-counter (OTC) derivatives market judging by the tone of the conversations at yesterday’s SEFCON V.

“It’s to be expected,” said  a beaming Chris Ferreri, chairman of the Wholesale Brokers’ Association Americas (WBAA) and who hosted the event. “Last year, we all were trying to accomplish the same thing. But with ‘made available to trade’ in place, we are all competitors now. Isn’t great?”

The zingers flew wild and free during the conference’s first panel on what the industry has learned over the first year of swap execution facility (SEF) trading.

Representatives from Bloomberg, Credit Suisse, the DTCC’s Data Repository, Thomson Reuters,  tpSEF and UBS shared some rather candid thoughts and information during the verbal free for all.

Although the UBS offers a SEF aggregation service, it currently does not connect to Bloomberg SEF or tpSEF.

And when it comes to differentiating the SEFs that have sizable liquidity, it is all about the bells and whistles that they offer, according to Bloomberg’s Nathan Jenner and Thomson Reuters’ Jodi Burns.

However, the SEF operators might want to cool their technology pitch to swap dealers and institutional investors, suggested PIMCO’s Ric Okun, who spoke on a later SEF-technology panel.

The rest of the day’s discussions addressed the future of cleared foreign-exchange (FX) non-deliverable forwards (NDFs) and the benefits and shortcomings of central limit order book (CLOB) versus request for quote (RFQ) execution.

When an audience member asked Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad whether the regulator developed a sense when NDFs would be available to trade, Massad stated that the CFTC “has not taken a view on it yet.”

Whether it will be before 2017, when the EU’s rules should go into effect, no one knows.

At least the one panel, which consisted of representatives from BGC Derivatives Markets, Bloomberg, Squire Patton Boggs and London-headquartered Wholesale Broker Market Association (WMBA), came to a consensus that NDFs probably will clear like US dollars and euros. They bandied about an 80-20 ratio, but could not agree on which currency represented which percentage.

The most heated conversations, unsurprisingly, related to CLOB and RFQ execution models. It definitely is the Mac versus PC and open-sourced software versus licensed software debate for the industry.

Supporters of RFQ won the day in terms of their loudness and liquidity, but consider the membership of the WBMAA.

CLOB supporters were optimistic that liquidity on their systems would pick up when interest rate volatility and its related volume returns to the market.

They also believed that as swaps dealers widen their RFQ spreads due to regulatory capital restraints, that it may drive investors to the CLOB platforms.

It is not clear if there will be a SEFCON VI, but the OTC industry still has a lot to do in terms of data consistency and quality, according to the DTCC.

A standardized instrument symbology across all SEFs would be a good place to start, suggested KCG’s Isaac Chang.

 

 

SEF Volumes Likely to Ramp Up in Early 2014

Javelin SEF is the first swaps execution facility (SEF) operator to submit a list of potential instruments that the electronic trading platform would like to “make available to trade” to the US Commodity Futures Trading Commission (CFTC), Bloomberg’s Silla Brush reported on October 19.

Greenwich Associates’ Kevin McPartland, who is quoted in the story, offers expanded analysis in a blog post of his own.

It’s not surprising that an all-electronic operation like Javelin was the first to break the surface tension with such a broad instrument list since it has no interest of keeping these transaction voice-based.

The CFTC has 90 days to decide whether to approve or reject Javelin SEF’s list. If it does not extend its decision deadline, traders will be required to execute trades for dollar-, sterling- and euro-denominated interest rate swaps on SEFs starting in mid-January 2014.

The regulator also started the clock ticking on a 30-day industry comment period for the SEF’s list that began on the filing date and, hopefully, will provide interesting opinions.

We Get It: The Markets are Fine

Since today is the US quasi-holiday Columbus Day and Thanksgiving Day for our northern neighbor, I do not feel really bad about sharing my thoughts about the Investment Company Institute‘s Capital Markets Conference held on October 10.

I have to admit that the conference had a pretty impressive line up. Commodity Futures Trading Commissioner Scott O’Malia started the conference by providing some interesting volume data for OTC swaps since some swap execution facilities (SEFs) went live on October 2.

Of the approximately 6,500 OTC swaps trade executed during this period, only 50 or so elected to do the electronically via request for quotes (RFQs) or using a best bid and offer (BBO) platforms, or that 99.23% of the trades were voice traded.

I have to admit, I was scribbling my notes while handling a minor IT issue at the time, so please take the figures with a truckload of salt. I’ve seen other coverage that claims that the figure is closer to 50%, which sounds a bit high since not a single SEF operator has submitted a list of contracts it would they would like to make “available to trade,” according to a trusted source.

Until that happens, all transactions fall into the “permitted trades” bucket that let’s investors decide how to execute their centrally cleared trades.

Commissioner O’Malia also discussed his concern that each SEF should provide pre-trade certainty for every transactions. If SEFs do not have it place soon, he would be calling the CFTC’s Technology Advisory Committee (TAC) into session in early November to seek a technology solution to the issue. Continue reading

CFTC Heats Up SEF Approvals

I’ve spent far more time today updating The SEF Scorecard than I originally intended. Little did I know that HTML and Cascading Style Sheets (CSS) are twin works of Satan, but more on that later.

Bloomberg started the summer as the first SEF operator to receive temporary registration from the US Commodity Futures Trading Commission (CFTC), but now the field is starting to get crowded. GFI Group,  MarketAxessState StreetTradeweb, each  received temporary approval from the CFTC recently. This leaves the 10 remaining SEF operators cooling their jets while they wait for their regulatory approval.

 

 

SEF Scorecard: You Don’t Know the Players Without It

Since the US Commodity Futures Trading Commission (CFTC) issued its rules for operating swaps execution facilities (SEFs) in June, the number of SEF applicants continues to grow.

Here’s an alphabetized list of those who have filed for SEF status with links to their proposed rule books, if available.

Continue reading