The forthcoming deadline for swap execution facilities
(Sefs) to become compliant with Dodd Frank will not trigger a
big bang in trading activity, according to a panel of industry
experts writes Jonathan Watkins.
With the current implementation date just a week away, the
market awaits to see whether a surge of activity will be pushed
through the new platforms for the clearing and trading of
Around 20 Sefs have filed for application with the CFTC to
capitalise on the new flow of cleared OTC derivatives business,
with most approvals from the CFTC coming in the past week or
The likes of Bloomberg, Intercontinental Exchange and trueEX
will battle each other in the Sef arena come October 2, the
date pencilled in by the CFTC for compliance.
Whether this date should be again delayed remains to be
seen, but for the handful of temporarily approved Sefs, next
Wednesday currently stands as the day when a new era of swaps
trading will commence.
But according to industry experts discussion the platforms
at FIA’s Bürgenstock event, the day
will not herald an notable explosion of trading.
"I think our type of firms will have a wait and see attitude
because it’s not clear which of these 19 Sefs will
be successful," said Remco Lenterman, managing director, IMC
Financial Markets and chairman FIA European Principal Traders
"There is not going to be a big bang.
George Harrington, global head fixed income trading at
Bloomberg, said he believed there would be trades but not as
many in comparison with the OTC activity currently
"I think we will be going backwards before going forward,"
"Competition is making everyone uncomfortable.
"If Sefs become expensive and market participants are
marking less money, then when you look at the business the
liability is concerning."
Bloomberg became the first Sef to be approved by the CFTC in
August, just two months after the CFTC approved the final rules
for the platforms.
The regulator brought the minimum request for quote down to
two for a phase-in period in the first year before increasing
to three, and also set thresholds for block trades, which can
be reported with a delay to the market.
voted for a minimum block size of $460m for two-year swaps,
$240m for fives, $170m for 10s and $120m for 30-year
As with the
RFQs the block sizes will increase after 12 months.
rules were finalised in May, Sef applications have come thick
and fast to the desk at the CFTC, with its chairman Gary
Gensler saying the regulator only had time to give the
paperwork a "cursory" glance.
global head of OTC clearing, prime clearing services at Newedge
said he believes there will be a big bang in terms of venues
launching and then a big crash when it all falls back in.
"Because of people’s uncertainties, 'which
venue should I go to?’ There is going to be a
discovery process," said Wilson.
"82% of firms said they would not trade with US firms. Why?
Because they said’ this Dodd-Frank stuff sounds
pretty awful, I’ll stay away from
Jeffrey Howard, managing director, global head of prime
service markets, RBS Securities said: "Trades will occur but
will occur then get pulled back."
CFTC chairman Gary Gensler noted
last week that the CFTC was aware of problems and recognised
the difficulty for platforms to meet the deadline.
He also addressed some of the
problems facing platforms come the launch date.
"We are aware of some issues
– whether it is how the pipes are between Sefs and
clearing houses work, and some of the pipes between Sefs and
data repositories work," said Gensler.
"We want to sort through those