The CFTC has just approved Javelin’s “self certified” list of Made Available to Trade (MAT) interest rate swap contracts. This means that from 15th February, in 30 days time, these products will be mandated to trade on SEFs or DCMs, and nowhere else (see below for full list of swaps).
However, it appears that Commissioner Scott D. O’Malia has concerns about the legality of the determination, as he has just released the following statement on the Made Available-to-Trade Determination. As we say, you really couldn’t make this stuff up!
It is hard to imagine a federal agency regulatory process that is more flawed than the Made Available-to-Trade (“MAT”) determination. The Commission staff has certified all interest rate benchmarks and related packaged transactions for mandatory trading on swap execution facilities (“SEFs”) or designated contract markets (“DCMs”), while at the same time, stated that it will consider some future action for all packaged transactions. And to complicate things further, the Commission has been excluded from a major regulatory decision that significantly reshapes current market infrastructure.
It gets worse, as he then goes on to say that:
I find this approach especially troubling given the CFTC Chief Economist’s assessment that these packaged transactions comprise 50 percent of the notional volume of the rates market. By accepting Javelin’s determination and then immediately contemplating further action with respect to half of the MAT transactions, the Commission creates uncertainty in the market and sets a dangerous precedent for future MAT determinations.
To be clear, I support mandatory trading determinations for the individual benchmark swaps. Once new products are subject to the clearing mandate, I will continue to support mandatory trading determinations that are based on data and objective standards.
However, as I stated in my dissent to the MAT rule, the MAT determination process “provides illusory comfort that the Commission will have a legal authority to review and, if necessary, challenge a mandatory trading determination . . . the only authority that the Commission has is to ‘rubber stamp’ a SEF or DCM’s initial determination.
Interestingly, I recall making a similar observation last May, when I commented that:
….The CFTC has in effect devolved/transferred many important decisions regarding ‘where, and when’ swaps will trade over to the new market infrastructure and trading venues themselves, but will this give too much power to new trading venues?
Javelin CEO James Cawley commented that:
“We made the decision to amend our [initial] MAT plan after speaking with customers in response to legitimate operational concerns in the market,” he said, adding that once those concerns were dealt with, a greater variety of OTC derivatives, including less-liquid products, would transition to mandatory SEF-based trading…more
The Commissioner ends with a plea to the commission to:
The Commission is now seeing the effects of this process as staff’s certification of Javelin’s submission leaves unanswered a number of legal questions for the Commission. I urge the Commission to revise the MAT rules to prevent carelessly considered MAT determinations from becoming a regulatory impediment to trading on a SEF.
Full text of Commissioner O’Malia’s statement is here
|Fixed-to-Floating Interest Rate Swap|
|Currency||U.S. Dollar (USD)||U.S. Dollar (USD)||Euro (EUR)|
|Floating Rate Indexes||USD LIBOR||USD LIBOR||EURIBOR|
|Trade Start Type||Spot Starting (T+2)||IMM Start Date(next two quarterly IMM start dates)||Spot Starting (T+2)|
|Notional||Fixed Notional||Fixed Notional||Fixed Notional|
|Tenors||2, 3, 5, 7, 10, 12, 15, 20, 30 years||2, 3, 5, 7, 10, 12, 15, 20, 30 years||2, 3, 5, 7, 10, 15, 20, 30 years|
List of Made Available to Trade products from Javelin (SEF) see press release from CFTC