The WMBA Americas hosted SEFCON V on November 12, 2014, and John Lothian News was there. We interviewed 14 SEF operators, regulators and participants and put together this three part series on the state of SEFs one year into the mandate. Part III looks at the new market structure brought about by the creation of SEFs and the regulations that guide them.
While many of the pieces are now in place, this structure is still taking shape, and in some cases, the rules have led to uncertainty and unintended consequences in the market structure.
Here are some of the highlights from the participants:
James Cawley looks back at what has been accomplished over the last 15 months in the SEF world, drawing both from his time at BGC Derivative Markets as well as Javelin Capital Markets, a SEF he founded but parted ways with last spring.
TABB Group‘s Anthony Perrotta says that, under new capital rules, liquidity provision in fixed income is “declining precipitously.”
A key aim of Dodd-Frank and other regulations was increased competition, but is a true “all-to-all” market possible? Is there a cost in terms of liquidity from these and other regulations? Is aggregation of separate liquidity pools a viable option?
“What would take, in a natural evolutionary cycle, five, ten, maybe 15 years to develop, we did it in as many months,” says Cawley. But, in the words of Squire Patton Boggs‘ Micah Green, “many issues have come up within the registration process that have raised more questions than answers, and those have to be dealt with.”
Does this mean there will be a SEFCON VI in 2015?