Keyser Sose, our anonymous Sef operator, talks about the confusion in the global coordination of regulations
One of the missing ingredients of regulatory reform
was the global coordination of rules, despite - to be fair
- best efforts from bodies such as IOSCO and the
This led to a disparity in timelines and laws and an immediate
fragmentation of liquidity. For example, the world of Interest
Rate Swaps found itself mainly on SEF for USD but some off-SEF,
and other currencies mainly off-SEF with some on-SEF and OTC FX
was mainly migrating off-shore and off-SEF.
This led to inefficient trading, reduced liquidity, widening
of spreads and a theoretical increase of global systemic risk.
All unintended consequences and absolutely not what a regulator
or (capitalist) legislator would want to see. So what to
Well the CFTC no-actioned (14-01) the guidance
requiring a non-US Swap Dealer with staff based in the US to
enable trading off-SEF until September. This gave the
flexibility to dealers to off-shore if their set up was
correct, meaning the transaction risk sits outside the US, but
so does the regulatory coverage.
The same no-action relief was not extended to the platforms
themselves, leading to the dichotomy covered in my previous
article. No one really wants an on-shore/ off-shore market with
potential arbitrage, so the CFTC and the FCA, covering two of
the largest global markets got together and developed 'the Path
Forward'. The headline-grabbing title and supporting statement
led to much market excitement, until two implementing No-Action
Relief Letters were issued -14-15 and 14-16. Once digested, the
This article is available to subscribers and registered users
Please log in to continue reading.
Not yet registered? Take a free trial.
If you have already taken a free trial you
have ongoing access to the analysis section of FOW.com including this story.
Log in using your details below to read.
Already have an account? |