November 12, 2013

SEFs: London’s short-term regulatory advantage? | Risk article

According to this Risk article (subs. required), with the UK's exemption agreed with CFTC to allow CFTC registered SEFs to execute trades between non-US persons in the UK, London would have appeared to take a temporary advantage over some other non-US regimes in the eTrading race.

With no similar exemption in place in (among others) France, Germany, Canada, Switzerland,  SEFs could take 6 months or a year to get specific approval in place for each SEF to allow trading in those countries on the platforms.   These are some of the largest swap trading countries outside the UK, USA and Japan.

A short-term workaround using an introducing broker in London between the participant in the non-exempt regime and the SEF in London may work.  Intuitively that seems to merely create another onboarding step or more process engineering or is anti-thetical to the essential efficiency of eTrading.

Not quite sure of the rules in each country but it seems likely that swap trading subsidiaries in London which are subsidiaries of financial firms HQ'd in those countries will be able to go ahead and trade on the SEFs in London.   With no non-US eTrading mandate this would only useful if those firms perceive a liquidity or price benefit over voice markets or single dealer platforms which will still be available.

Question: any information would be gratefully appreciated on activity on SEFs which are not included in the US SDR and SEF reported volumes?


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