SDPs prepare to offer SEF liquidity aggregation/routing for clients

We have long-held the position that under Dodd Frank, the SEF execution mandate (whilst not welcomed by all), will nonetheless create opportunities for Single Dealer Platforms to provide enhanced value to clients through SEF Aggregation, and smart order routing capabilities, as certain products move from a bi-lateral to a cleared model.

A number of leading dealers as well as research reports, support this view including RBS, UBS and Tabb Research. Caplin has also covered this extensively in a recent White paper entitled “Single Dealer Platforms in a Cleared World”.

Paul Hamill, Head of Matched Principal Trading for UBS America’s, in an interview published today in states the position very clearly as:

“Our intention is not to be a Sef – it’s to be a liquidity aggregator of Sefs. We think the best value we can bring our customers is in the aggregation space. That would mean, to be clear, that execution does not take place on our platform in the future, and that it is simply the conduit to liquidity, rather than the place liquidity is provided,” Hamill says. here

Indeed, earlier this week, the CFTC Chairman, Gary ‘Sef’ Gensler, made a robust defense of the Dodd Frank ‘SEF execution mandate’, in his speech at ISDAs AGM.

Yet despite all this, on the anniversary of the Dodd Frank Act (DFA), The Streetwise Professor (SWP) in his inimitable way, declares the ‘one size fits all’ SEF model, as mandated is flawed, given the diverse nature of the OTC marketplace:

SEF mandates are still the Worst of Dodd-Frank.  And slathering on the systemic risk lipstick won’t make that pig any more attractive.

The SWP is always worth a read here

please see Craig’s comments below

13 Responses

  1. Thanks as always for the link and the kind words. Just to clarify: I am not opposed to SEFs or to SDP aggregators. If they prevail in a competitive marketplace, more power to them. What I am opposed to is the we’re-from-the-government-and-here-to-make-you approach of forcing a one-size-fits-all SEF model on a very diverse marketplace. It is illuminating that Gensler appears to recognize that the original defense of the SEF *mandate* wasn’t moving the needle, so he feels compelled to construct new arguments almost 2 years after Frankendodd escaped the castle-I mean the Capitol- and was unleashed on the world.

  2. Hi Craig,

    Your point is of course noted. I didn’t want to copy too much directly from the blog, but rather linked to your post.

    I have changed it slightly to read:

    “Yet despite all this, on the anniversary of the Dodd Frank Act (DFA), The Streetwise Professor (SWP) in his inimitable way, declares the ‘one size fits all’ SEF model, as mandated is flawed, given the diverse nature of the OTC marketplace:”….

    Best Regards


  3. […] of trades, across SEF/OTF venues. For more recent posts on SDPs and SEF aggregation look: here, here, and […]

  4. […] Smart order routing to SEFs, OTFs, and optimisation analysis tools […]

  5. […] View: The SEF routing and sales trader to client voice collaboration are very much in-line with Caplin’s thinking in […]

  6. […] white paper Single-Dealer Platforms in a Cleared World,  (2nd paper in the list) recent posts (here, here and […]

  7. […] pricing model to a service based agency offering, Single Dealer Platforms will adapt delivering aggregation and routing of SEF liquidity, risk management around reporting, clearing, margining and collateral transformation and RWA […]

  8. […] My comment: aggregation via Gator & algo via PowerFill are an interesting mix. And this provides a view of how Single Dealer Platforms can aggregate other asset classes such as SEFs (as we have mentioned previously). […]

  9. […] course, were this to happen, one would have to question the requirement for SEFs at all, let alone SEF aggregation, as the problem becomes far less complex, and would almost revert to ‘business as […]

  10. […] basis, and move towards an agency execution/services based model. Client trades being routed via single dealer platforms using SOR and SEF aggregation, to enable clients to optimise their execution performance. Much of this was discussed in recent […]

  11. […] clarification of the final SEF rules are the banks that will be providing liquidity to SEFs (and aggregation of SEF Liquidity via their own single-dealer platforms) , the platform vendors and inter dealer brokers who hope to register as SEFs, the exchanges who […]

  12. […] swap liquidity, through a variety of trade protocols. Much as we have been saying in previous posts here, and in Caplin’s white paper SDPs in a cleared […]

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