SEFs and OTC Trading special report
Click here to download the PDF
Much Ado About SEFs
Love them or hate them, swap execution facilities (SEFs) are here to stay. Although the "Big Bang"-predicted to transpire in February, when certain instruments had to be executed electronically-never really happened, derivatives trading reform has had a profound impact on technology, market structure, and the international conversations about finance. Indeed, the establishment of SEFs is just the first stage of this change, with Europe now beginning to work on its own version of electronic execution in the form of organized trading facilities (OTFs), and some parts of Asia-Pacific beginning to consider the future of the market in light of mandates from the Group of 20 nations.
The build-up to SEFs and their birth hasn't been easy and the range of opinions on their practicality and usefulness is still diverse among participants. Privately, some senior figures in fixed-income trading say they see SEFs as simply reporting by another name, while others say the fight to make regulators understand that not everything can trade like equities has been exhausting, with victories measured in small concessions and footnotes.
Ultimately, swaps reform isn't about placing burdens on dealers through reporting mandates, centralized clearing, or saying that Bank X may no longer trade directly with Bank Y for no reason. Just as markets have evolved and continue to do so, the ways in which those markets are overseen have to keep pace. The reduction of systemic risk is the main objective-some might say the only objective-and bringing an opaque, bilateral, primarily voice-based market into the modern age is the only way to do that. It has not been a perfect ride by any means, if the amount of incorrect reporting and failures on the part of regulators to even understand the data is anything to go by.
Small problems continue to plague SEFs, as Michael O'Brien, director of global trading at Eaton Vance, states in this report's roundtable. While Eaton Vance is doing everything in line with SEF trading, he explains, it still has problems with the rulebooks that haven't been resolved, and therefore doesn't trade directly just yet. Curiously archaic rules also remain, such as the obligation to store and retain physical contracts, rather than digital copies.
But signs of acceptance are filtering through, with increased SEF volumes and data suggesting that dealer-to-client flows are increasing, even matching dealer-to-dealer numbers on the larger SEFs in recent weeks. Inevitably, the market will assert itself over time, most likely in the form of a rationalization of SEFs to a more manageable, streamlined number.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Trading Tech
Interop after acquisitions remains daunting for buyers
Executives from a variety of vendors speaking at WFIC explained why desktop interoperability is important and why progress has been slow.
Should banks risk lightning hitting twice for CrowdStrike?
Bank tech teams divided on whether to give security vendor a second chance after update crash.
Northern Trust adds fixed-income capabilities for outsourced trading in Asia-Pacific
The custodian bank now offers 24/6 fixed-income trading coverage with desks in Chicago, London, and Sydney.
South Africa’s equity markets court HFTs with tech upgrades
Competition for flow has driven innovation in connectivity, risk, and data provision.
Dealer relief at delays to Refinitiv Matching’s tech migration
First phase of replatforming for Swiss spot pairs set to be pushed to mid-2025.
Kepler Cheuvreux builds proprietary execution platform with Adaptive
The broker wants to move away from third-party technologies as DORA’s risk management requirements could make vendor relationships more cumbersome.
Let’s grow the third-party risk playbook – CME security chief
The CrowdStrike outage has highlighted the need for the financial sector to adjust its game plan.
Facing platform shutdown, former IEX Cloud head buys its assets in 11th-hour bid
Tim Baker, Pedro Aguayo, and a silent partner have come together to purchase IEX Cloud’s assets days before the exchange was to retire all its products on August 31.