The Dodd Frank Act creates a new class of trading venue intended to bring greater transparency to the trading of OTC derivatives. With new fixed income trading venues already emerging in response to the US legislation, Sassan Danesh and Murray Reid of ETrading Software argue the time has come for the introduction of open industry connectivity standards, based on the FIX Protocol and FpML.
Historically, a large percentage of
OTC fixed income derivative trades have been bilateral deals
arranged via a sell-side broker. The recently passed US Dodd
Frank Act looks set to bring significant change in fixed
income, shifting a considerable volume of such deals on to
regulated trading venues.
These venues, known as Swap
Execution Facilities (SEFs), are defined in the act as a
facility, trading system or platform in which multiple
participants have the ability to execute or trade swaps by
accepting bids and offers made by other participants that are
open to multiple participants in the facility or system,
through any means of interstate commerce.
Although the new
US legislation is still in process and the rulemaking is not
yet complete, the Dodd Frank Act is already making an impact in
the world of fixed income. Critically, it has provided
an opportunity for start-up trading facilities to take some of
the liquidity that must inevitably migrate to the new trading
platforms. The industry is already responding to the stimulus
created by regulation, with Eris, Javelin and Tradition being
just a few of the examples of venues seeking to become
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