Buyside confused over OTC regulation

Interesting article by Phil Davis in the FT today (registration required) about asset managers being required by Dodd-Frank to clear trades through a central counterparty. The article quotes David Field of Rule Financial. Rule have apparently conducted a buy-side survey which confirms several of the consensus opinions of the Clearing and Settlement Working Group (CAS-WG) (which I blogged about last week).

Field said:

The buyside is very confused about the timelines. We conducted a survey on this and answers ranged from September 2012 to December 2014. One even said December 2015.

The article concludes that the buy side is unaware of the timeline and is also unprepared for having to post collateral on deals for the first time.

Interesting read.

New bill may restore sanity to SEF regulations

Just noticed this announcement:

Chairman of Financial Services Subcommittee on Capital Markets Scott Garrett, is introducing a bill (H.R. 2586) “the Swap Execution Facility Clarification Act”, which will require the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to finalize swap execution facilities (SEFs) rules that allow the swaps market to naturally evolve towards Continue reading

OTC Derivatives Regulation, and ‘What is a Swap Execution Facility’

In my efforts to understand the new legislation covering OTC Derivatives, I came across an excellent blog called ‘Streetwise Professor’ written as you would expect, by a streetwise US Professor of Finance and Energy Markets.

In a recent post called What is a Swap Execution Facility , the ‘prof’ looks at the new ‘Dodd-Frank’ regulations for OTC derivatives. He concludes that in their rush to promote ‘transparency’,  congress (and regulators) have created a very narrow ‘one size fits all’ definition of a Swaps Execution Facility.

This he argues is not in the interests of market participants and in his view will result in the creation of alternative execution mechanisms (similar to how equities markets evolved to create ‘dark pools’ of liquidity) that accommodate the diversity of requirements of market participants.

Here is the narrow definition of a Swaps Execution Facility:

The Dodd Frank legislation defines a SEF as a “Facility, trading system or platform in which multiple participants have the ability to execute or trade Swaps by accepting bids and offers made by other participants that are open to multiple participants in the facility or system, through any means of interstate commerce”

More on this in coming blogs.