Asset managers are actively considering using futures products and swaps not required to be traded on swap execution facilities (SEFs), as the second made available to trade (MAT) submission is passed by the Commodity Futures Trading Commission (CFTC).
Sassan Danesh, managing partner at Etrading Software, told theTRADEnews.com a number of buy-side firms are concerned over the beginning of mandatory SEF-based swaps trading in February and will consider short-term use of swap futures products to delay the start of SEFs trading.
“Some buy-side firms are considering a switch over to swap futures or products outside of the MAT scope in the short-term because they are concerned about how their connectivity to SEFs will handle the start of SEF-based mandatory trading,” Danesh said.
On 15 February, 36 interest rate swaps instruments will formally switch over from bilateral trading to SEF-based trading after the CFTC approved a MAT submission by Javelin SEF last week. A further 16 IRS instruments will join the list of MAT products after the Commission approved the MAT submission of trueEX SEF this week.
In total, five SEFs have submitted MAT applications and the next approval from the regulator will take place in April – for Bloomberg SEF. Despite this staggered approach to mandating swaps trading on SEFs, Danesh said the step-by-step process may benefit asset managers adjusting to the new trading venues.
“The rolling nature of products becoming made available to trade on SEFs is good because there has been so much uncertainty around the entire process, and this lets participants begin to trade certain swaps products on SEFs over time,” he said.
Swap futures products first entered the market in 2012 led by three US futures exchange – the Chicago Mercantile Exchange, Eris Exchange and Intercontinental Exchange – and will offer lower margin requirements compared to OTC derivatives.