Only three SEFs approved ahead of 2 October deadline

Just three Swap Execution Facilities have received provisional authorisation from the Commodity Futures Trading Commission, despite the launch of SEFs being only weeks away.

Just three Swap Execution Facilities (SEFs) have received provisional authorisation from the Commodity Futures Trading Commission (CFTC), despite the launch of SEFs being only weeks away.

So far, only the Bloomberg SEF and two SEFs operated by TradeWeb have received provisional authorisation from the CFTC.

The first swaps are due to begin trading on SEFs on 2 October, and so far 16 different SEFs are known to have formally applied for regulatory approval to operate the new types of trading facilities.

But so far, progress on authorising SEF applicants has been slow. Bloomberg applied for SEF authorisation in early June, just days after the CFTC finalised its rules on how the new trading systems should operate, but did not receive approval until 30 July.

TradeWeb applied on 3 July but did not receive authorisation for its two SEFs, which will between them offer central limit order book and request for quote models, until 6 September.

With several other SEF applications made in the last few weeks, including those by Thomson Reuters and ICAP, the CFTC now has a tight deadline to meet to ensure traders will be able to begin using the wide range of SEFs on offer in time for the 2 October deadline.

Among the SEFs that have already applied, many are opting to adopt the multi-asset class approach, offering FX derivatives, credit default swaps (CDS), interest rate swaps, commodity derivatives, equity derivatives and more.

So far, only a few SEFs have opted to take a more focused approach. INFX and Thomson Reuters have opted to focused on FX swaps, while ICE Swap Trade will concentrate on CDS.

Market experts have predicted the SEF market will see a period of intense competition from 2 October, followed by a period of consolidation with only a few SEFs eventually expected to service each asset class. With the large number of firms taking a multi-asset approach, the market may consolidate rapidly as liquidity converges on the most popular platforms.

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