ICAP, the largest inter-dealer broker and operator of two swap execution facilities (SEFs), confirmed yesterday that it is pulling out of the Wholesale Markets Brokers Association, Americas, an industry advocacy it helped form six years ago.

“ICAP and the four founding members of the WMBAA shared many common goals and interests when the organization was established in 2009,” according to an ICAP spokesman. “The US political system has since created and implemented the Dodd-Frank Act and the bulk of global regulatory reform efforts have now moved to Europe and beyond. We therefore believe ICAP’s efforts are best directed outside of membership of the WMBAA.”

The announcement comes less than two months before the association’s annual conference, SEFCON, casting doubt on the future of the conference itself. Already the conference must continue without previous chairman Chris Ferreri, ICAP’s former head of e-commerce, who retired from the firm this past March after a 30-year career there.

By all outward appearances, Ferreri was SEFCON. He was the name and face of the conference, and acted as emcee for the event. In the early years of the conference, Ferreri shared these duties with Chris Giancarlo, then executive vice president at rival broker GFI Group. In 2014, Giancarlo left GFI to become a commissioner at the Commodity Futures Trading Commission. Interestingly, GFI was acquired in early 2015 by another WMBAA member firm, BGC Partners. Technically speaking, then, the WMBAA is down to three firms – BCG/GFI, Tullett Prebon and Tradition.

Meanwhile, SEFCON VI is a go, scheduled for October 26, at the Waldorf Astoria New York. Tullett Prebon’s Shawn Bernardo now acts as WMBAA chairman, with BGC’s Stephen Merkel as vice chairman.

Although ICAP’s departure may come as a shock, change is warranted. The firms came together in the wake of the financial crisis, when coming regulations threatened their very existence. Among other rules, the Dodd-Frank Act required all swap transactions to take place on an exchange or on a swap execution facility, a new type of entity defined in fifty words by the Act, but left the hundreds of pages of details regarding the structure, rules and procedures surrounding SEFs up to the CFTC.  

IDBs are competitive in nature – competitive for best execution of orders, and competitive with each other. It is not in their nature to get along, but they did. Now that the Dodd-Frank rules are largely in place, ICAP looks to be saying it no longer needs to pretend they are friends. To that end, ICAP is still working with the WMBA in Europe, where the focus of the regulatory efforts have shifted. There is still much work to be done on MiFID II and the harmonization of rules across jurisdictions. Of course, two other industry associations, FIA and ISDA, have also been weighing in to ensure the market structure surrounding SEFs and other participants is not adversely disrupted as rules are implemented.

It is important to note that, though SEFs as envisioned by Dodd-Frank are basically IDBs, the two are not synonymous. This is even more true, as the OTC derivatives world becomes more electronified, and as lines blur between dealer-to-dealer activity and dealer-to-client activity. As shown in the latest FIA SEF Tracker, IDBs do not necessarily “own the table.” SEFs such as Bloomberg and Tradeweb, which offer electronic systems and an entirely different cost structure, have seen increasing market share in what many see as an evolution toward a true “all-to-all” OTC market. In this regard, a WMBAA made up solely of legacy IDBs makes little sense.

The WMBAA will either dissolve or evolve, and the move by ICAP is merely the first move. If there is a SEFCON VII in 2016, it will be a very different conference from the one set for next month.

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