Watering down SEF rules?


The FT ran a story late last week that the CFTC could be poised to weaken its position on SEF trading rules.

Mark Wetjen, seen as the swing vote on the five-person Commodity Futures Trading Commission, recommended in a confidential agency memorandum that the CFTC alter its proposed rule regarding derivatives marketplaces, or “swap execution facilities”, according to people who have seen the document.

People familiar with the situation, suggest that Mr Wetjen, could propose that the CFTC drop the requirement for institutional investors to send out 5 price requests (RFQs) for a trade. Instead a compromise would ‘incentivize’ participants to rely on near-real-time prices which are entered into a ‘central limit order book’ for swaps, rather than requesting quotes from banks.

The concern from dealers and large investors, has always been that the heavy emphasis on multiple quotations, and pre-trade transparency, would compromise the liquidity in these markets, and result in an undue increase in costs.

The proposal from Mr Wetjen could see the 5 RFQ proposal replaced with a rule that a ‘minimum’ of two competitive quotes be obtained.

Of 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 usual’ amongst dealers quoting clients!

More on this FT here 

One Response

  1. […] This survey comes after press reports last week that the CFTC may be about to ‘water down’ the SEF rules. […]

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