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.
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.