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March 5, 2014

C2D vs D2D split preserved despite SEF MAT | Bloomberg article

It's worth reading this article: "Swaps revolution falling flat" from Bloomberg.  In a nutshell it says that after 2 weeks of SEF MAT, the split between dealer-to-dealer (D2D) and client-to-dealer (C2D) has been preserved.  I'm still wondering whether it will ever happen.

It's worth reading this article: "Swaps revolution falling flat" from Bloomberg.  In a nutshell it says that after 2 weeks of SEF MAT, the split between dealer-to-dealer (D2D) and client-to-dealer (C2D) has been preserved.  I'm still wondering whether it will ever happen.

Quite a lot is required to make the C2D vs D2D split breakdown

1.  Shift of buy side focus from MAT compliance towards optimizing MAT prices – no doubt buy side firms are still absorbing the new world post-MAT and tightening up compliance and/or ensuring they don't trade MAT products

2.  Buy side access to D2D / IDB SEFs – asset managers and D2D SEFs are reportedly still working on direct connections.  The only agency execution broker trades I've seen in the press have been C2D SEFs (TrueEx, Bloomberg).

3.  Buy side visibility to a clear C2D SEF vs D2D SEF price differential – partly prices may not be that varied, partly the only SEF specific information is open and close and total volume.

4.  Buy side absorption of order-driven trading protocols – once connected to a SEF CLOB, this involves absorbing order-driven trade (on top of CCP margin optimization and other relatively new things).

5.  Credit checking / asset manager allocations – not sure where IDBs are with absorbing fully functional pre-trade credit checks and handling of asset manager allocations.  Potentially a lot of work still to do.

When might this happen?

Tabb in the article suggests the status quo will remain throughout 2014.

Given large buy side firms have been vocal that they can get the execution liquidity, certainty and price they need from an RFQ world, I wonder whether there is ever sufficient impetus to bring this to a tipping point.


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