Get with the programme

Electronic trading of swaps will soon be mandatory and industry participants need to get ready. Javelin kicked off the process on October 18th, filing its MAT (Made Available to Trade) submission with the CFTC for a broad range of interest rate swaps, including spot and forward starting swaps and variable notional swaps, with tenors ranging from 1 month to 51 years. Or, as one participant on an interest rate panel at last week’s FIA Expo in Chicago put it, “everything but the kitchen sink”. Javelin has subsequently amended its submission, dropping variable notional swaps and reducing the tenor range to 31 years, among other changes. Meanwhile, TrueEX and Tradeweb made MAT submissions for the so-called “benchmark” IRS tenors (2, 3, 4, 5, 6, 7, 10, 15, 20, 30 years), TrueEX included their so-called “SCSM” (standard coupon standard maturity) swaps and both MarketAxess and Tradeweb ‘MAT-ed’ CDS index swaps.

As expected, the CFTC issued 90 day “stays” on each submission, prior to issuing its approval, so the first available to trade swaps will be approved mid/late January next year. With a 30 day “implementation period” following the determination, mandatory trading could kick in as early as mid-February 2014.

Without dwelling further on the specifics of the MAT submissions or their revisions, it’s important to reiterate the most salient point: some profound organizational and technological changes are coming next year and market participants need to be prepared for them.

Comments
2 Responses to “Get with the programme”
  1. Anonymous says:

    You mention mandatory trading of swaps and the CFTC rules. But how does it work with the security-based swaps that fall outside of the CFTC’s remit?

  2. Mark Brennan says:

    Another astute reader also commented to the effect that the blog seemed to imply interest rate swaps, and did not distinguish among other asset classes, including equity swaps, which would fall under the SEC’s jurisdiction. To the frustration of some in the industry, the SEC has yet to draft its rules for the security-based swaps under its remit.

    Indeed, it’s critically important to distinguish those swaps that will become “Required Transactions” under the CFTC’s SEF rules, from so-called “Permitted Transactions”. That is, the only swaps that will come under the trading mandate are those already mandated for clearing under Part 50 of the CFTC’s regulations, namely IRS, Basis, OIS and FRAs for USD, EUR, GBP and JPY currencies, and CDX and iTraxx CDS indices.

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