Bloomberg Wins CFTC Green Light for SEF Operation

The SEF offering will operate cross-asset, providing execution on a request-for-quote and order book basis. Products offered include interest-rate swaps, commodity and foreign exchange (FX) derivatives, and credit default swaps. Bloomberg, already a big player in the electronic derivatives space, applied for authorization soon after the CFTC rules on SEFs were finalized earlier this year.

Temporary approval allows SEFs to operate before the full registration process has been completed, seen by many in the industry as a nod to the delays that the regulator had in getting final rules in place. The SEF will open for trading by the mandatory compliance date of October 2, 2013, set by the CFTC.

"The implementation of SEFs is one of the more meaningful ways the Dodd-Frank reforms have sought to increase transparency and standardization in the swaps market," says Ben Macdonald, global head of product at Bloomberg and president at Bloomberg SEF LLC, the subsidiary organization charged with the running of the SEF. "As one of the largest independent swaps trading platforms, operating a SEF for our clients is a logical progression for Bloomberg.

"While clients can continue to execute on our traditional derivative platforms until the CFTC's mandatory compliance deadline, receiving approval ensures our readiness to provide them with everything they need to begin SEF trading on October 2," he continues.

Through Title VII provisions in the Dodd-Frank Act, and global moves to increase transparency in the over-the-counter (OTC) derivatives markets, regulators across the world are forcing standardized contracts onto electronic execution platforms such as SEFs. The facilities stand between the counterparties of a deal, which have traditionally been conducted by voice, and report details to swap data repositories before sending trades through to central clearing. In Europe, analogous entities to SEFs, organized trading facilities (OTFs), are in the process of being finalized.

The implementation of SEFs is one of the more meaningful ways the Dodd-Frank reforms have sought to increase transparency and standardization in the swaps market. - Ben Macdonald, Bloomberg.