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 theTRADenews.com. “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
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
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.