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January 21, 2014

CFTC confirms IRS SEF MAT live date of Feb 16

As expected, CFTC approved Javelin's MAT submission last Thursday Jan 17 and in effect booked a Feb 16 go live date. The background is at my previous post.  Since then Bloomberg also submitted a MAT submission in early December – limited for IRS to spot-starting benchmark fixed-float IRS in USD and EUR only.

CFTC's determination – as per the press release – seems to heed participant liquidity concerns in narrowing scope from Javelin's submission – in particular, taking out non-benchmark tenors, basis swaps, the GBP currency.  It also perhaps wisely limits the experiment in mandating yet-to-be-liquid standardized date (IMM / MAC) swaps to USD.
 
My interpretation is below.  Comments appreciated.
 
What IRS scope is mandated exactly?  Benchmark tenors, fixed float IRS in USD LIBOR (spot-starting and IMM) and EUR EURIBOR (spot-starting only).  More elaborately:
 
  • Products: fixed float IRS only (Javelin also submitted basis swaps)
  • Indexes: LIBOR / EURIBOR only (An OIS decision awaits in the TradeWeb determination by Jan 27th)
  • Start type: spot starting and IMM dated (assuming MAC swaps are a subset of IMM swaps – can anyone please confirm?)
  • Spot starting currencies: USD and EUR (Javelin also submitted GBP)
  • IMM dated currencies: USD only (Javelin also submitted EUR and GBP) 
 
Sighs of relief all round?   Not quite.  Two IRS scope things remain:
 
  • More staggered IRS determinations and go lives: TrueEx imminently, TradeWeb Jan 27th and Bloomberg in early Feb with go lives 30 days later in each case.   If common sense can be relied on, CFTC won't reverse direction on the things it took out of the Javelin scope.  If so, the convoluted process obscures a simpler truth – the only remaining scope question is whether OIS is MAT or not.  This is because:
  • Bloomberg IRS and TrueEx determinations are non-events as their scope is a subset of what was just approved
  • TradeWeb's only discrepancy with the determination just produced is the additional OIS benchmark tenor swaps

(Couldn't we have got the OIS decision done and get all 5 IRS letters out of the way in one go?  Ed.)

  • The swap package conundrum: Javelin included swap spreads.  Swap spreads are a type of package trade involving a swap and another product (US govt. bond, IR future, bond future etc.) traded together for convenience and a combined price.  It seems CFTC wants to defer packages from MAT for now at least but not conceding a blanket exemption for otherwise MAT swaps which are part of the package.  
  • Commissioner O'Malia was ready with critical comments – published it on the same day as the press release.
  • A public round table is mooted but a general solution by Feb 16 looks a tall order.

(I feel a time-limited no action relief coming on. Ed.)

At least IRS SEF MAT implementation should be straightforward by now?   Nope.  Given only 30 days from firm scope determination, there must be some element of re-work in the last month even if the scope is narrow. The chips are now down for:

  • SEFs, FCMs, CCPs and market infrastructure providers to close MAT go live critical issues flagged since SEF went live electively in October – whether they be legal, rule book, compliance, connectivity, functionality etc.  
  • Complying participants to finally select their starting subset of SEFs, close their own critical internal capability issues and make final end-to-end connectivity checks.

What about CDS?  About 10 days later.  MarkitAxxess and TradeWeb's determinations are due by late Jan with Bloomberg's due by early Feb.  Eyes down for a late Feb go live.


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