CFTC needs to rethink SEF rules
Present rules need closer re-examination, particularly those relating to MATs, to prevent SEFs from becoming enablers of high-risk swap product trades.
New rules prohibiting US originated swaps from being traded as OTC lack efficacy because of made available to trade and request for quotes provisions.
As mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, effective 2nd October, 2013 all swaps cleared in the US are required to trade either on a swap execution facility (SEF) or on a designated contract market (DCM). The Commodity Futures Trading Commission (CFTC) has been tasked to regulate SEFs (and DCMs) that are essentially trading platforms that provide pre-trade information and an execution mechanism for swap transactions among eligible contract participants. The introduction of this new compliance regime raises the very real possibility that the regulatory framework SEFs will operate under is both weak and inadequate.
Consider, two (out of five) of the CFTC commissioners namely Jill Sommers and Scott O’Malia criticised the new rules as being ‘watered down’. Scott O’Malia in his dissenting note regarding the made available to trade (MAT) provision opined that, “the rule provides illusory comfort that the commission will have a legal authority to review and, if necessary, challenge a mandatory trading determination made by a SEF or DCM. In fact, the only authority that the commission has is to “rubber stamp” a SEF or DCM’s initial determination”.
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Categories: Clearing & Settlement
, Markets & Exchanges
, Risk & Compliance
, Risk and Regulation
Keywords: US CFTC
, Jill Sommers
, Scott O’Malia