Over at Kevinonthestreet, Kevin McPartland has a very good post on why SEFs volumes really don’t matter at this stage.
Some key points from his post are:
- Little incentive from largest buy and sell side market participants to change trading habits, despite 18 approved SEFs
- No Made Available to Trade (MAD) applications have been made, and mandatory trading is months away
- SEFs want SEFs, major market participants don’t want SEFs, and it’s just not clear what the CFTC wants
- Footnote 88 (permitted transactions) drove trading back to the phone – the exact opposite of the desired result
- Prior to October 2 clients traded 25% of index credit volume electronically, a
proportion that took years to achieve.
But after October 2, one large dealer-to-client SEF reported that electronic trading of index CDS on their platform was down 95% week-over-week (source Greenwich Associates Data)
- Regulatory uncertainty left many clients concerned they might unknowingly violate rules, so they decided to take the safe route of staying away from SEFs altogether
- Onerous SEF documentation and rulebooks
- Pre-Credit credit checking for execution certainty via Limit Hubs not fully connected to platforms
- Void Rules for trades that fail at clearing
Full Post here