Over half of market participants believe the swaps market will contract through a reduction in notional outstanding because of flow moving to swap execution facilities (SEFs), a report by consultancy TABB Group has revealed.
The report shows the industry is growing less confident that the introduction of SEFs to facilitate swaps trading will have a positive impact on the market.
The findings were based on surveys TABB has conducted in 2011 and 2013, which shows 56% of respondents think SEFs will decrease notional outstanding in the swaps market, compared to only 29% in 2011. In 2013, 32% said SEFs would increase notional outstanding, compared to 53% in 2011.
Earlier this year, the Commodity Futures Trading Commission, the US regulatory body that has taken the lead role in reforming the swaps market, released its final SEF rules, which has lead to four market operators applying for SEF status.
However, the TABB report shows only a quarter of market participants believe the Commodity Futures Trading Commission (CFTC) has crafted adequate rules for SEFs. Some 26% of survey respondents registered disapproval with the SEFs rules, and many respondents cited an expected dip in liquidity because of greater transparency requirements when trading on SEFs.
The surveys quizzed over 150 buy- and sell-side market participants, clearinghouses, regulators and SEF operators.
Radi Khasawneh, TABB research analyst and co-author of the report, titled ‘SEF Industry Barometer: Summer 2013’, said the fact SEF rules had been finalised was broadly positive, with SEF registrants showing a willingness to begin trading activities as soon as possible.
“Over the coming months, we expect to discover ‘where the rubber meets the road’ of reform, specifically, which models will gain traction,” Khasawneh said.