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ISDA AGM: RFQ Dominates SEF Execution

By Helen Bartholomew
Published April 10, 2014 IFR

A regulatory-driven overhaul in the way that over-the-counter derivatives are traded has seen much of the US$693trn swaps market cleared through central counterparties and standardised contracts traded over newly-created swap execution facilities. But the rise of new platforms for trading swaps remains some way from the exchange-like model that regulators may have envisaged, with client and dealer preferences veering firmly towards the “request for quote” model that has always prevailed in OTC markets.

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Euro Swaps Flee Sefs

By Tom Osborn
Published April 10, 2014 Risk

Trading in euro and sterling-denominated instruments on swap execution facilities (Sefs) has all but evaporated in the wake of a February 15 execution mandate from US regulators, according to research published yesterday, reinforcing fears that a lag in implementation of Europe's own rules has allowed liquidity to flee US platforms.

Trading in euro-denominated products that are subject to the Sef mandate – defined by a so-called made-available-to-trade (Mat) determination from the US Commodity Futures Trading Commission (CFTC) – has fallen by 30% in notional terms since the first Mat deadline, according to an International Swaps and Derivatives Association analysis of volumes from the Depository Trust & Clearing Corporation trade repository.

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CDS Trades Jump on SEFs

By Richard Henderson
Published April 4, 2014 The Trade

Credit default swaps (CDS) traded on swap execution facilities (SEFs) grew 75% from January to April, according to data compiled by the International Swaps and Derivatives Association (ISDA), while rate swaps have seen little growth.

In March, 8,198 CDS trades were executed on SEFs, up 74.1% from January’s total of 5,112 trades. The highest daily trading value was on 13 March, with 566 trades worth US$17.8 executed on SEFs. The data includes all US dollar CDS product types executed on SEFs across all tenors.

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SEFs Feel Growing Pains

Published March 27, 2014 Markets Media

The adjustment to trading OTC derivatives on swap execution facilities is proving to be difficult for buy side institutions that are used to calling their bank or using a single-dealer platform.

Following the Made Available to Trade (MAT) determinations, which kicked off mandatory SEF trading on February 18, institutions and end users of derivatives have taken what can be best described as a toe in the water approach.

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Market Switches Out of Credit Package Trades

By Hazel Sheffield
Published March 27, 2014 Derivatives Week

Market participants are switching from trading credit options against indices—exchanging deltas, or exchanging credit options with the underlying index—to trading options outright in anticipation of the expiry of no-action relief from SEF trading for packaged trades on May 14.

A letter from the Commodity Futures Trading Commission on Feb. 10 established relief from SEF trading for package transactions, or transactions involving more than one swap where one swap is subject to the SEF mandate and one is not. 

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End-Users Believe Sefs Will Hurt Swap Market – Isda Survey

By Tom Osborn
Published March 26, 2014 Risk

A new survey from Isda shows end-users are pessimistic about rules requiring the use of swap trading platforms, and also believe the lag between US and European implementation has split liquidity along geographic lines

New execution rules for over-the-counter derivatives will make the market more expensive, less liquid and less easy to use, according to a survey of swaps end-users conducted by the International Swaps and Derivatives Association – results that raise questions about the regime, says the chairman of Isda, Stephen O'Connor.

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New U.S. Swaps Trading Seen Hurting Banks Less Than Feared

By Peter Rudegeair
Published March 25, 2014 Reuters

When U.S. regulators pushed trading in a profitable derivative on to newly created exchanges last month, many analysts feared the worst for banks' first-quarter results.

They worried that moving some of these interest-rate swaps - one of the most widely traded fixed-income derivatives that banks offer - to platforms called swap execution facilities (SEFs) would dry up volume, reduce banks' fees and make what was already expected to be a tough quarter for fixed income trading even more dire.

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Futures Traders Embrace Algorithms

Published March 25, 2014 Markets Media

Algorithmic futures trading is being used by commodity trading advisors (CTAs), global macro hedge funds, pension funds and asset managers, and those tools can be applied to the emerging OTC swaps dealing facilities known as swap execution facilities (SEFs).

SEFs provide an all-to-all trading mechanism known as central limit order books (CLOBs), which resemble the exchange-traded derivatives model.

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How to Game a Sef: Banks Fear Arrival of Arbitrageurs

By Tom Osborn
Published March 19, 2014 Risk

It’s a tactic beloved of hagglers the world over – claiming an item can be bought more cheaply elsewhere – but imagine how much more powerful and convincing it would be if the prospective buyer secretly had the power to write some of those other price tags, effectively setting market value before opening negotiations.

Some dealers claim they are facing this risk when making markets on swap execution facilities (Sefs). As the walls separating price-makers and price-takers are torn down by the platforms – which are subject to rules that all participants must have the opportunity to quote – it might be dangerous to act as an ever-present, always-on liquidity provider, which is the role dealers currently have in over-the-counter derivatives markets. 

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Credit Trading on SEFs Led by Dealer-to-Client Platforms

By Richard Henderson
Published March 17, 2014 The Trade

A report from consultancy Celent on swap execution facilities (SEFs) has shown credit products are dominated by one venue, while liquidity in rates instruments remains tightly held by inter-dealer brokers (IDBs).

The report, the second of a two-part series released in March, has shown a concentration of interest rate swap trading on IDB SEFs, while credit default swaps activity has been constricted to dealer-to-client (D2C) platforms, chief among them Bloomberg.

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