December 3, 2013

MATerial consensus – now when is the live date? | SEF CFTC Submissions Converge (part 2)

As a result of some CFTC dialogue and comment letters on the topic, we seem to be homing in on consensus around LIBOR only spot-starting and MAC/IMM swaps.

Re-submitted MAT letters

  • Javelin's removed full curve and compounding proposals
  • TradeWeb's removed OIS and Basis swaps

For further commentary, I refer you to Kevin McPartland's handy summary.   You can also read for yourself CFTCs received comment letters on the topic.

What's left to determine?  Here's how the three letters now differ.  I outline buy side comment  consensus against each:

  • Swap types: all three include IRS – Javelin also includes USD swap spreads vs US treasuries.  Buy side day 1 consensus: IRS – delay swap spreads / all package trades
  • Currencies: all three include USD – Javelin also includes EUR; TradeWeb also includes EUR, GBP.  Buy side day 1 consensus: USD / EUR  – delay GBP
  • Spot-starting vs MAC/IMM: all three include spot-starting – Javelin & TrueEx also include MAC/IMM IRS for the two nearest IMM dates.  Buy side day 1 consensus:spot-starting and MAC/IMM .
  • Tenors:  all three include benchmarks i.e. 2, 3, 5, 7, 10, 15, 20, 30 years – Javelin also includes the 12 year; TradeWeb the 4 and 6 years. Buy side day 1 consensus: benchmark tenors – delay other whole years / partial years

My day 1 scope guess?  Ink your plans for USD/EUR spot-starting and USD IMM swaps in benchmark tenors.   Keep your readiness plans flexible on GBP spot-starting, swap spreads and non-benchmark tenors – each of which have liquidity or operational question marks.

Can CFTC reduce MAT scope post-live?  Not really.  Only if SEFs "delist" the swaps can CFTC determine a category of swaps to be "no longer MAT".

To phase or not to phase?  I doubt it.  Many of the comments comments outline a proposed phased timeline.   This may be awkward for CFTC to pull off given logistically it is the SEF MAT letters that drive the process. Most likely CFTC opts for simplicity, focuses on day 1 scope approval of the three letters on the same day and defers consideration of further scope additions.

When is day 1?  Feb / March 2014.   Public conjecture points to a February / March 2014 go live implying the first CFTC MAT determination approval decision in Jan / Feb. Most likely no other SEFs submit a letter as this would be seen as delaying the process. CFTC controls timing – all SEFs / clearing mandated participants go live 30 days after CFTC approval of a SEF MAT determination.


Question: does anyone think Gary Gensler may be tempted to push for an early decision before his tenure is over at end Dec 2013?

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