Friday, March 14, 2014 1:41:31 PM

Common SEF rulebook idea mooted

A number of market participants plan to develop a common rulebook for a number of swap execution facilities (SEFs) to ease buy-side take-up of the platforms according to Jim Myers, senior manager, business consulting, treasury and risk management for Sapient Global Markets.

Myers, who is attending the Futures Industry Association (FIA) conference in Boca Raton, Florida, this week, said a number of firms in private discussions had suggested they were actively considering forming a mechanism to share SEF rulebooks across platforms.

Documentation for SEFs has emerged as a key impediment to buy-side activity, as asset managers themselves are required to sign off on a SEF’s rulebook, which makes them directly subject to Commodity Futures Trading Commission rules governing SEFs.

In addition, many SEF rulebooks have gone through a series of changes to regulation, each time requiring sign-off from participants.

“There are some industry bodies looking to assist buy-side and other market participants by making a uniform rulebook across a number of platforms,” Myers told “As SEFs use their rulebooks as a means to differentiate their platform’s offering compared to rivals, understanding 21 separate rulebooks has been a challenge.”

He said it would make sense for the buy-side, but from a SEF perspective may impede the ability to run the platform properly.

A SEF panel held at the FIA conference on Wednesday covered a range of issues that continue to concern the buy-side in using the new OTC derivatives platforms.

Specifically, mandatory trading requirements that began in February under the ‘made available to trade’, or MAT, rule caused a dip in liquidity that has since slowly climbed to normal levels.

The panel also discussed on-going concerns about pre-trade credit checks, which require futures commission merchants (FCMs) to guarantee the clearing of a trade prior to execution.

There is doubt about key aspects of this process, such as bunched trades, whereby a buy-side firm executes a number of trades for several of its underlying funds. If one of these trades is refused clearing, the process by which other trades in the bunch are cleared has not been established.

Myers added that he agreed with the widely accepted idea that the number of SEFs – currently 21 – will dramatically drop in coming years. He said members of the industry close to SEFs have said this figure could be as low as five SEFs within a year from now.

“Some industry members believe there will likely be around five SEFs in twelve months time as liquidity is concentrated within a core group of platforms according to specific types of instruments,” he said, adding that for products like credit default swap indices, a firm like MarketAxess may dominate the field.

Richard Henderson +1 212 217 6916