Thoughts on electronic swaps trading
At Capco we have had a few thoughts on the take-up of electronic swap trading in the US and the implications on Europe with their upcoming version of swap trading under MiFIR – which probably will be mandated from 2015 onwards. Some of this has found its way into a blog and a corresponding infographic.
A few first lessons learned appear to be:
- Regulatory differences (EU versus US) currently dampen the road to substituted compliance regarding pre-trade transparency rules. As a result, OTF guiding rules might be altered in the process of implementing MiFIR
- The CFTC should grant dealers and SEF operators outside their direct regulatory reach a no-action relief period until OTF rules have been finalized
- Avoid confusion amongst market participants: establish concise guiding rules for OTF allowing sufficient time for technical and operational implementation, and avoid regulatory arbitrage between MiFIR and linked regulations (e.g. EMIR)
RISK just this week also offered their view (subs required) on why the industry, and especially the trading platforms, think that OTF framework (which still needs to be sufficiently defined by MiFID II / MiFID and ESMA's technical standards) may be sufficiently different to US SEF rules. Equivalence between different jurisdictions' rules and regulations of the once truly global derivatives market seems to be farther and farther away – which could potentially lead to a regional fragmentation of this market. Regulators should strive to find common ground to ensure that the global nature of this market remains intact.
The upcoming personnel changes at the CFTC and upcoming EU parliament elections next year will once again create a new level (?) playing field – one, which will determine the course of derivatives markets for years to come…
I am highly interested in your thoughts on this topic. So comment away :)