Looser swaps trading rules could boost volumes by up to 20%

Greenwich Associates lays out potential benefits to ease of restrictions on swaps trading and SEFs in the US.

A looser regulatory approach to swaps trading in the US could see volumes boosted by as much as 20%, according to a new report from Greenwich Associates.  

The current Dodd-Frank-inspired rules around swaps trading and swap execution facilities (SEFs) have been slammed by industry participants as being too strict, stunting growth of the market since they were introduced in 2013.  

The share of institutional interest rate swap trading volume executed electronically has been stuck at around 60% for the past four years, according to Greenwich Associates.  

However, should regulators take a less stringent approach towards swaps trading, average daily notional volume on SEFs could increase by up to 20%, and could spark a boom in innovation and electronic trading, the report highlighted. 

In April, chairman of the US Commodity Futures and Trading Commission (CFTC), Christopher Giancarlo, laid out plans to loosen rules around swaps trading and ease restrictions on SEFs to boost liquidity and volumes.  

Despite the perceived de-regulation of the swaps market, Kevin McPartland, head of research for Greenwich Market Structure and Technology and author of the report, warned that regulators must be careful that looser rules do not erode price transparency that has been gained over recent years.  

“Although the post-Dodd-Frank swaps market is a much improved version of its former self, other markets with less prescriptive rules have seen a much larger influx of transformative technology,” McPartland said.  

“The recalibration of rules that is currently in progress is the right step to the next stage of innovation for swaps trading… A big move toward more voice trading within the limits of these proposals could hurt pre-trade price transparency, price competition and market access for all but the largest players.”