Excess Power of SEFs


Last month I suggested that the CFTC’s final rules had handed too much market power to the SEFs, by allowing them to determine which instruments they would Make Available to Trade (the MAT rule).

My closing comment in the post were:

….That’s a lot of market power being given over to trading venues, and to those individual SEFs/DCMs that are quick off the block to ‘self determine’ products! Full post here

Risk.Net last week published an article that picks up on the same point, and interestingly takes it one stage further, saying that even the SEF’s themselves think that the CFTC has given them too much market power!

Lee Olesky, chief executive of Tradeweb in New York, states that:

There is plenty of concern out there that anyone who files as a Sef has the ability to set standards for the whole market

The head of trading at another large US venue warns that:

…if one Sef tries to list a product, others will be forced to follow. “The MAT rule invites a race to the bottom by allowing SEFs to use one of six determinants to come up with a belief that a given product should trade on a Sef. We are going to work with our liquidity providers to make a determination around which products we think have enough liquidity for MAT status – we will not decide that independently. But when other SEFs list products, that forces our hand to trade those products through our Sef also,” he says.

Effectively, the fear among market participants is that an aggressive platform will list products that others have shunned, potentially creating a monopoly for itself, and dragging swaps that ought to be executed bilaterally into a world of 15-second transaction delays, minimum quote requests and central limit order books – measures designed to promote competition and transparency, but which will drive up costs and hurt liquidity, according to some.

Full Risk article here (subscription required)

2 Responses

  1. […] That kind of power makes even the well-established leaders in the field uncomfortable as reported in SDP and RISK (subs required). TABB meanwhile seeks to determine if SEFs will at all gain a foothold […]

  2. […] in May, I commented that the CFTC had devolved perhaps too much market power to the SEFs, by allowing them to self determine when products should move to mandatory trading on […]

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