The impact of political gridlock over key US government funding will drastically reduce the operations of regulator the Commodity Futures Trading Commission (CFTC) and could thwart the launch of swap execution facilities (SEFs).
Although US markets have show resilience to the stalemate in Congress’ over President Obama’s healthcare reforms, which on Tuesday spurred the cut off of government appropriations, causing a reduction in government personnel under the Antideficiency Act, the impact on SEFs may be more pointed.
The CFTC, the key agency governing SEFs, said in a statement 28 of its 680 employees, which amounts to 4.1% of its staff, would be exempt from the restrictions of the Antideficiency Act, as their work is deemed necessary to address an imminent risk to the safety of human life or the protection of property.
“The limited contingent of excepted employees has been identified to ensure, to the extent practicable, that a bare minimum level of oversight and surveillance of the futures markets, clearing operations, and intermediaries is maintained,” the CFTC statement read. “However, the vast bulk of the CFTC’s oversight and surveillance functions will cease during a lapse of appropriations.”
Last week, the Commission wrote a letter to SEF operators providing greater clarity on pre-trade credit checking, trade fails and acceptable execution agreements with counter parties including futures commission merchants. The CFTC also issued no-action relief letters pushing back reporting requirements for SEFs for real-time reporting of pricing and volume data, and reporting to swap data repositories. These requirements will begin for SEFs trading FX swaps from end-October and 2 December for those trading equity and commodity swaps.
But, despite this late guidance and the impact of governmental gridlock, plans to begin trading on SEFs may be too far advanced to limit their launch on Wednesday.
Frederic Ponzo, managing partner at consultancy GreySpark, told theTRADEnews.com despite calls to the contrary, the new execution venues will likely launch as planned.
“I don’t think the shutdown will affect tomorrow’s launch of SEFs as much of the infrastructure and tech is already setup and many platforms are running already. However, what we might see is a delay in swaps being ‘made available to trade’ which could set back mandated trading,” Ponzo said.
The cross-border implications of swaps trading on SEFs were also this week thrust into the spotlight as the European Commission’s top financial services commissioner Michel Barnier said in a letter to CFTC chairman Gary Gensler the US should stall its SEFs registration five months until 14 March. This, Barnier asserted, would give regulators on both sides of the Atlantic more time to work out key cross-border issues and provide Europe-based SEFs more time to register with the CFTC.