Bats Global Markets (Bats) has announced plans to acquire Javelin, a Swap Execution Facility (SEF) that is registered with the US Commodity Futures Trading Commission (CFTC).According to Bats, the deal is intended to accelerate it plans to offer trading ...
FX market participants face numerous challenges next year in adhering to regulatory deadlines, according to experts on a recent Profit & Loss webinar.
One of the more immediate regulatory deadlines that firms are currently preparing for is on March 1, 2017, when the new variation margin requirements for non-cleared derivatives come into force.
But as Gabriel Rosenberg, a partner at Davis Polk pointed out, there are a number of factors within these requirements that are making them difficult for firms to comply with, even in instances where they are already exchanging variation margin with their counterparties.
Scott Fitzpatrick, CEO of Tradition SEF, talks to Profit & Loss about the ways in which the swaps market structure has – and hasn’t – evolved since the introduction of Swap Execution Facilities (SEFs).
Profit & Loss: Has the launch of SEFs three years ago actually precipitated any major changes in the structure of the swaps market?
Scott Fitzpatrick: From an infrastructure perspective, you could argue that an increased level of efficiency has been introduced into the post-trade processing of swaps transactions. Whether it’s the centralization of processing through SEFs adopting a straight-to-clearing model or the direct reporting to the Swap Data Repositories (SDRs), and provision of daily trading activity files, there is a transparency and fluidity in the post-trade environment that did not exist prior to the introduction of the SEF regulations and the creation of the accompanying infrastructure.
Bill Shields, chief compliance officer at GFI Swaps Exchange, talks to Profit & Loss about how swaps regulations could change in 2017.
Profit & Loss: Are you expecting significant changes to swaps market regulations under a Trump administration?
Bill Shields: In large part this will depend on who is leading the Commodity Futures Trading Commission (CFTC). Commissioner Christopher Giancarlo could be named as the long-term head of the agency, and he put out whitepaper outlining a lot the SEF rules that he would like to change or eliminate. If these changes were enacted it could get rid of many of the artificial barriers to trading that the CFTC put in place that weren’t necessarily required by Dodd-Frank. In addition, Commissioner Giancarlo, has spoken about the need to modernize the CFTC’s regulatory regime.
Representatives of buy side firms called for greater innovation and flexibility around swaps execution at the SefCon VII event in New York on January 18, hosted by the Wholesale Markets Brokers’ Association, Americas, and organised by Profit & Loss.
Speakers at the event explained that swaps trading has not changed much for the buy side since the introduction of Swap Execution Facilities (SEFs), with most buy side firms executing their swaps transactions via a request for quote (RFQ) format. The only difference now, they said, is that the RFQ occurs on an electronic platform rather than via the phone.
Nex Group has received regulatory approval from the Commodity Futures Trading Commission (CFTC) for a new Swap Execution Facility, Nex SEF (Nex SEF).
EBS is the technology provider to Nex SEF, but the trades are executed on the latter of these two platforms. The new SEF is expected to have onboarded customers and be live for trading in the second quarter of financial year 2017-2018. Nex says that its new SEF will serve as a platform that can be used to launch additional products in the future.
Nex Optimisation is now providing central clearing connectivity for its FX risk mitigation service in non-deliverable forwards (NDFs).
The clearing connectivity capability enables dealers to flag trades that are part of a risk mitigation cycle for automatic submission to a central counterparty clearing house (CCP).
This means that clients of Nex’s Reset FX risk mitigation service can now have their trades be submitted directly for clearing rather than having to be re-submitted for secondary matching prior to communication to a CCP.
Micah Green, a partner at Steptoe and Johnson, addresses the future of Swap Execution Facilities (SEFs) now that Christopher Giancarlo is the chairman of the US Commodity Futures Trading Commission.
Green points out that Giancarlo was working in the financial services industry during the initial roll out of Dodd-Frank and the SEF rules that were implemented as a result of this legislation.
“I think it became clear to him, and I think it’s reflected in his white paper on swap execution rules, that the SEF rules that were adopted in a relative rush post-Dodd-Frank missed the mark from his perspective as to what the statute required,” says Green, who adds that CFTC staff are beginning to draft now swap execution rules as a result.
CBOE Global Markets (CBOE) has announced the launch of NDF trading on its Swap Execution Facility (Sef), CBOE SEF.
CBOE Sef will offer a fully anonymous central limit order book with firm all-to-all trading available to all market participants, configurable firm and non-firm streaming quotes for tailored liquidity needs and curated liquidity pools to help meet participants’ execution criteria. The Sef will also offer pre-trade Net Open Position (NOP) credit checks and real-time risk management.
CBOE claims that there will be a diverse network of participants resting passive liquidity and a wide distribution network for market makers on the platform.
Profit & Loss’s latest OnTheBlock series featured a one-one-one discussion with former CFTC staffer Justin Slaughter, now a partner at Mercury Strategies, in which he provided an insider’s perspective on how cryptoassets are being viewed by regulators in Washington, DC.
P&L OnTheBlock: An SEC official recently said that the agency does not view ether[eum] as a security. Does this mean that the issue is settled and the SEC definitely won’t try and regulate it as a security now?
Justin Slaughter: What we are basically hearing is that there isn’t an explicit, major problem with ether as a security. They are not yet saying it's totally, absolutely, not a security.
There appeared to be a broad consensus in the responses to the Commodity Futures Trading Commission’s (CFTC) proposed swap dealer rules that the Commission should retain the current $8 billion de minimis threshold for swap dealer (SD) registration and that NDFs should be excluded from the threshold calculations.
Since 2012, Commission regulations have stated that market participants will not be considered a "swap dealer" unless they trade over $8 billion per year in aggregate gross notional amount (AGNA). This $8 billion threshold was meant to be a temporary phase-in period, with the threshold ultimately due to be reduced to $3 billion.
The average daily volume (ADV) of spot FX traded on Swap Execution Facilities (SEFs) in January was $61.2 billion, up month-on-month from $49.8 billion and up 5.5% from $58 billion in January 2018.This represents the third highest month of ADV ever, behind June and March 2018, when the platforms registered a total of $62.9 billion and $61.3 billion, respectively. Tullett Prebon’s SEF saw the most FX volume, with an ADV of $15.8 billion going through its platform last month. The next biggest by volume was the BGC SEF, which recorded an ADV of $12.4 billion in FX, followed by Tradition and GFI, which both recorded $9.4 billion.