Concern over a rule that will force market participants to trade certain instruments on swap execution facilities (SEFs) should be based on a dynamic review of product liquidity, two panelists urged at the SEFCON conference on Monday.
The Commodity Futures Trading Association’s (CFTC) ‘made available to trade’, or MAT, rule stipulates participants must trade a swap on a SEF if one has made it available.
Speaking on a SEF technology panel, Sonali Das Theisen, director, credit trading, Citi said a MAT submission from SEF operator MarketAxess’ would be the optimal direction for the industry as swaps could be added and subtracted from a list of MAT products.
“If a product is no longer liquid enough to trade on a SEF, there should be a process by which it can be taken off of the SEF,” Das Theisen said. “In addition to a product being ‘made available to trade’ we believe SEFs themselves should be demonstrating they can handle the instruments that are [classed] MAT.”
Currently, four SEFs have submitted MAT filings with the Commission, namely interest rate swaps-focused trueEX and Javelin, and credit default swap-focused Tradeweb and MarketAxess. Javelin has proposed the widest parameters for MAT products, stating those with tenors between one month and up to 50 years could be included.
Rick McVey, CEO of MarketAxess, said some SEFs may be incentivised to cast a wide net for their MAT applications to attract trading volume, but said not all instruments were suitable for SEFs.
“The data is very clear. A significant amount of market volume is traded through a small group of swaps – around 70-75% [of CDS] volume is traded in eight swaps,” he said. “Lets start with what we can handle now, which is the actively traded swaps that we think Congress had in mind [when creating SEF rules].”
There is uncertainty over how the CFTC will proceed. Chair Gary Gensler said at the event the Commission would look to include the entire rates curve when deciding on MAT submissions. His colleague and Commissioner Mark Wetjen said earlier this month the Commission had little power in refusing a MAT application. A decision is expected within 90 days, after which a 30-day comment period would ensue, with implementation expected in mid-February.