The Wholesale Markets Brokers’ Association Americas (WMBAA) is an industry advocacy group made up of five inter-dealer brokerage firms (IDBs): BGC Partners, GFI Group, ICAP, Tradition and Tullett Prebon. Since 2010, the WMBAA has hosted its annual SEFCON conference in New York on issues surrounding swap execution facilities (SEFs), a new type of financial transaction execution entity created by the Dodd-Frank Act. SEFCON IV, to be held November 18, 2013, will feature a status update on SEFs from regulators, legislators, dealers, traders and other market participants. Conference chairman Chris Ferreri offers a glimpse as to what attendees can expect in this video with John Lothian News Editor-at-Large Doug Ashburn.
Swap execution facilities (SEFs) were given life by the Dodd-Frank Act, which requires over-the counter (OTC) swaps to be cleared and traded on this new type of regulated platform. Any swap that is “made available to trade” must trade on designated contract market or a SEF. The Commodity Futures Trading Commission (CFTC) has been given the lion’s share of responsibility for creating the framework for SEFs, which has included working with the industry on developing the rules, defining of key terms, setting a timeline for implementation and, ultimately, for the monitoring of SEFs.
The CFTC finalized several execution rules at its May 16, 2013 open meeting, including SEF Core Principles, the “made available to trade” provision and block trade rules. In the summer and early fall of 2013, 18 would-be SEFs registered to become SEFs, and most have subsequently been granted temporary approval. Firms are now in the process of requesting certain swap classes be “made available to trade,” with SEF firms Javelin, TrueEX and Tradeweb among the first to submit requests.
In other words, while much of the SEF structure has been put in place, there are still many issues to be worked out. For example, there are hidden gems in the rules, such as Footnote 88 and Footnote 513, which may allow loopholes for certain platforms and registrants. Additionally, some aspects of swaps rules are still being considered and possibly up for review.