The number of swap execution facilities that have either received approval from or filed applications with the Commodity Futures Trading Commission is growing at a rapid clip, with the October 2 deadline for the start of SEF operations having already kicked in.
The trading venues will enable counterparties to OTC derivatives transactions to issues requests for quotes and trade against an order book, using a combination of voice, electronic and hybrid systems.
This week, IntercontinentalExchange, Bloomberg, and Integral Development received approval from the CFTC to launch their SEFs, and SuperDerivatives filed an application.
Integral Development Corp., a provider of FX trading systems, launched INFX SEF, a platform for trading non-deliverable forwards (NDFs). The company has leveraged its expertise in OTC FX trading technology to meet new regulatory requirements in order that customers can continue conducting their FX business without interruption.
“INFX SEF has been granted temporary approval by the CFTC, which means that we put the proper mechanisms in place – including compliance related processes – that fulfill the standards of the regulators,” said Vikas Srivastava, CEO of ISEF and head of business development at Integral Development Corp.
But compliance is just one piece of the puzzle. “Equally important is getting it right for customers and their business needs.” Srivastava said. “SEF rules are a big change for the industry, and to us, it was very important to respond to our customers’ workflows and processes so that we could help them transition to SEF trading with the least amount of disruption to their businesses.”
On its first day of SEF trading, the Bloomberg SEF recorded more than 110 trades executed by over 50 firms. The trades were executed across every asset class Bloomberg’s SEF offers – including interest rate swaps, credit default swaps, foreign exchange swaps and commodity derivatives – and totaled more than $6 billion in volume.
“It’s encouraging to see that despite market uncertainty and last minute regulatory changes, more than 50 of our clients are already trading on our SEF,” said Ben Macdonald, Bloomberg’s global head of product and president of Bloomberg SEF LLC. “We see this as a positive start. The launch of our SEF represents a multi-year effort to ensure we provide our clients a reliable, complete solution to help them comply with Dodd-Frank regulation.”
IntercontinentalExchange launched ICE Swap Trade, with trading activity in many different products in the energy and credit default swap (CDS) markets.
"The launch is the culmination of a collaborative effort among ICE, our customers and our partners to create a marketplace for our energy and credit customers that enables them to adapt to regulatory change with confidence," said Thomas Farley, senior vice president of financial markets at ICE. "The readiness of our solution was evident in the smooth transition and customer adoption."
ICE Swap Trade offers various index CDS products across North American, European and emerging market instruments and intends to offer single-name CDS in the future. ICE transitioned its cleared OTC energy contracts to futures in October 2012.
SuperDerivatives, a cloud-based derivatives technology and trade execution provider, has developed SDX Trading, a suite of SEF-compliant electronic trading tools for currency and commodity derivatives.
“We have filed our application for SDX Trading to become a regulated SEF, and will be working closely with the regulators to provide our customers with a fully compliant electronic execution platform for a wide range of swaps products and asset classes, starting with FX and commodities,” said David Collins, head of SDX Trading. “We welcome the regulatory drive in the OTC markets, which we believe will offer more transparency and deeper access to liquidity for swap market participants.”