Data released on the first week after the official launch of trading via Swap Execution Facilities (SEF) showed that trading was substantial at a volume of 6,500 swaps, which initially averaged 1200 trades daily. While market share leaders including Bloomberg (which led at 84% for FX derivatives), and ICAP (which led with 70% market share for interest rate swaps) enjoyed a profitable week, many analysts were skeptical in this early snapshot of results, sensing that over time the volume will shift in favor of other types of dealers.
More importantly, many doubt that SEF volume will continue at the same rate because of the ongoing doubts that overshadowed the new platform before it came into existence. Prior the Dodd-Frank derivatives rules coming into effect, fears about the cumbersome reporting and registration requirements for trading via SEF’s were expressed fervently by US firms. But US firms are not the only ones taking the heat now; their EU counterparts are also impacted. Outside of the controversial cross-border trading rules proposed by the CFTC which would require all European firms with branches in the US to process their trades through central clearing houses, they also must be registered as SEF’s to facilitate trades with US firms.
Once again, the murky rules guiding the OTC markets between the US and EU remain unresolved, and as a result, we are already seeing liquidity fragment. Furthermore, the concern of investors turning to swap futures continues to threaten the market. It may be too soon to tell how SEF trading will shape up, and while we can only hope that volume miraculously holds, too many factors are working against its success.
Read further analysis on the topic at The Trade News