Another interesting development in the adoption of the SEF rules which come into force today.
In addition to listing mandated products (that are mandated to trade on a SEF and be cleared via a CCP), a SEF may list products that are not mandated to trade (or clear). Such transactions would be termed ‘Permitted Transactions’. Which on the face of it doesn’t sound a bad thing.
In order for a multiple-to-multiple platform to trade ‘mandated products’, it must register as a SEF as outlined in the SEF rules. To date eight platforms (Bloomberg, GFI, MarketAxess, Tradeweb , TeraExchange SwapEx, and just today Integral,) have applied to register as SEFs, and to date only Bloomberg has received temporarily clearance to operate as a SEF. ICE just announced (6th Aug) that they will launch Ice Swap Trade which will operate as a SEF).
However, and here’s the rub, under SEF rules there is a small footnote 88 which states that:
“any multiple-to-multiple trading venue, which lists Permitted Transactions MUST register with the CFTC as a SEF, even if they only trade Permitted Products.” (see DavisPolk page 3)
The end date to register as a SEF being 2nd October 2013, so what does this mean for the multi-bank ‘many-to-many’ platforms trading swaps which have not yet registered as SEFs, and are currently trading ‘permitted products’?
FXWeek covers this topic today, and talks of a frantic scramble by some of these platforms to register as SEFs, and get huge client agreements in-place in order to support the SEF regime.
Should platforms fail to register by that date, the beneficiaries of the ‘permitted products’ rule could well be Single-Bank platforms and good old voice execution!
PWCRegulatory has good summary of rules here