Keeping SEF doors open

The CFTC has come out strongly in defence of the open, impartial nature of SEFs, as envisioned by Dodd-Frank. In a letter issued last Thursday it warns SEFs not to use “enablement mechanisms” to control access to their markets, or to control which participants interact with one another on their platforms. It also warns against engaging in “prohibited discriminatory treatment”.

The Commission had already tried to clarify trading and clearing certainty in its STP guidance, but this recent letter goes much further. It discusses both market structure and the need to ensure access for eligible contract participants and ISVs, as well as for dealers and FCMs. In trying to preserve the unique nature of the swaps market both Dodd-Frank and the CFTC’s final SEF rules allow for a hybrid market structure, specifying only that SEFs have an “order book”, as well as RFQ to two participants (going to 3 later in 2014). This loose, hybrid approach allowed SEFs wide latitude in how they structured access to, and interaction on, their electronic platforms. The Commission has now forcefully articulated how it expects this market structure to work in practice, emphasizing fairness, impartiality and transparency.

Whether or not this implies that truly anonymous central limit order books come to the fore, it certainly opens up the market further. And, as the Commission continues to articulate the role of the FCM and a kind of ‘customer protection’ on swaps execution, it suggests the emergence of an effective agency model in the not too distant future.

Leave A Comment

Copyright © 2017 Fidessa group plc. All rights reserved.

The information contained within this website is provided for informational purposes only. Fidessa will use reasonable care to ensure that information is accurate at the time it is made available, and for the duration that it remains on the site. The information may be changed by Fidessa at any time without notice. We also reserve the right to close the website at any time. No representation or warranty, expressed or implied, is given on behalf of Fidessa or any of its respective directors, employees, agents, or advisers as to the accuracy or completeness of the information or opinions contained herein or its suitability for any purpose and, save in the case of fraud, all liability for direct, indirect, special, consequential or other loss or damages of whatever kind that may arise from use of the website is hereby excluded to the fullest extent permitted by law. Any decisions you make based on the information in this website are your sole responsibility and information on the website should not be relied upon in connection with any investment decision.

The copyright of this website belongs to Fidessa. All other intellectual property rights are reserved.

Reproduction or redistribution of this information is prohibited except with written permission from Fidessa.