Buy-Side concern over CFTC SEF rules for RFQs


As the CFTC moves closer to finalising the Swap Execution Facility (SEF) rules, SIFMA’s Asset Management Group (SIFMA -AMG) has released results of a Buy-Side only survey on the impact of the requirement to go out to five or more liquidity providers for a request-for-quote (RFQ) platform to qualify as a SEF.

Participants of the survey were mainly asset managers that manage mutual funds, hedge funds and other institutional accounts, representing over $12.1 trillion of assets under management.

According to  Robert Pickel, ISDA Chief Executive Officer, the conclusions of the survey werethat:

Buy-side market participants are concerned that the SEF rules might increase costs and reduce the availability of tools that they need to risk manage their investment portfolios. This can have adverse consequences to the individual and institutional clients of these firms.

According to Stuart Kaswell, General Counsel, Managed Funds Association:

The survey results strongly argue for the CFTC to amend their proposal and permit the sophisticated investors that participate in these markets to send a quote request to as few as one recipient, allowing those investors to rely on their own, extensive expertise and experience with these transactions

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

Amongst the interesting questions asked in the survey, was these:

We asked how a requirement to submit RFQs to five liquidity providers would affect their firm.

  • Over 84% of respondents indicated that the RFQ rule would result in increased transactional costs.
  • Roughly 70% of respondents indicated that they would migrate to other markets.
  • 68% of participants would look to trade an instrument that is not required to be SEF-traded.

We asked firms how a requirement to submit RFQs to five liquidity providers would affect swaps traded on SEFs.

  • 87% of responding firms advised that their transactional costs would increase and 76% of participants anticipated other increased costs (e.g., new legal arrangements).
  • 82% identified that they anticipate spread widening.
  • 76% indicated it would have a negative affect on liquidity.
  • Over 50% of responding firms advised that this requirement would dampen the speed at which the swaps market will develop.

Full survey results here, and comments from ISDA here

Great comments here from The Streetwise Professor (SWP) on this topic:

 The regulation seems to be extremely paternalistic.  Like end users are children who need to be made to eat their Brussels Sprouts, because they don’t know what’s good for them.

More from SWP

One Response

  1. […] “RFQ to five” will end up reducing liquidity as larger dealers will be reluctant to reveal their positions. Investors may not be comfortable displaying pre trade prices as this will expose business ideas. The panel agreed that ‘RFQ to one or more’ would be more appropriate. […]

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