The Embargo Rule: Good News from Dodd Frank?
One rule imposed by Dodd Frank that presents an opportunity for dealers is the “embargo” rule, otherwise known as the law requiring real-time public reporting of all swaps transactions and pricing data, which was created to provide better liquidity in the OTC market. This rule offers somewhat of an olive branch to dealers and major swap participants by allowing them to share raw transaction data with their customer base while at the same time sending it through to the swap data repository.
The advantage is all about timing. Dealers, market participants and customers that qualify under this rule get a sneak peek at the data before other factors kick in, such as time-and-sale and compression or novation. These players are then able to not only better forecast their transactions, but also bargain for them.
However, it potentially creates a mess for SEFs who are now having to first release trade details to the SDR before sharing with other SEF participants, thus incurring additional costs and potential flash trading, whereby they can no longer keep up with orders. For SEFs, it may skew competition, as it deters firms from registering; market participants who do not qualify under the embargo, in other words, those without direct access to the SEF, will get the short end of the stick.