CFTC

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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.

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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. Read the rest of this entry »

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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.

 

 

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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.

Read the rest of this entry »

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Okay, this post’s title is a little misleading. I doubt that any trader would to apply the standard high-frequency trading strategy, which constantly pennies orders throughout the day but does not leave any open positions at the end of the day, when it comes to over-the-counter (OTC) swaps trading.

What has garnered my attention is the Commodity Futures Trading Commission’s (CFTC) trade reporting embargo rule that prevents swaps execution facilities (SEFs) from sharing recently executed trade details with other SEF participants before the SEF’s system releases the trade details to a swaps data repository (SDR).

Such a set up is going to lead to an unholy mess once dealers and non-dealers begin trading on SEFs. It is going to lead to a replay of flash-order headache that happened in the equities market a few years ago.

Yes, I know that the two markets aren’t carbon copies of each other. However, this embargo market data embargo will create a bifurcated market data model consisting of participants taking their feed directly from the SEF and those who will rely on data aggregator or SDR feeds.

According to a few well-placed industry sources, they expect SDRs to operate at the same pace as FINRA’s TRACE reporting platform. That might be fine for manual voice trading, but not when SEF matching engines run at millisecond speeds.

I can see both sides of the argument. Given the very illiquid nature of the OTC swaps market, flashing prices of recent trades helps provide additional liquidity. Yet, to take advantage of it, a market participant will need a direct link to the SEF. That’s an expensive proposition as more and more SEF operators come out of the woodwork.

Large dealers may be able to take on those additional market data costs given the large trade volumes they execute, non-dealers likely will balk at the situation.

In the equities market, all of the exchanges decided to retire their flash orders before the Securities and Exchange Commission (SEC) needed to make an official ruling on the order type. I do not think the CFTC will have the same luxury.

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