The CFTC Division of Market Oversight (“DMO”) certified TW SEF LLC’s (“Tradeweb”) self-certification of certain interest rate swap and credit default swap (“CDS”) contracts that have been made available-to-trade (“MAT Determinations”). The CFTC stated that swaps subject to MAT Determinations, whether offered by trueEx or any other swap execution facility (“SEF”) or designated contract market (“DCM”), will become subject to the trade execution requirement under CEA Section 2(h)(8) (“Jurisdiction of Commission; Liability of Principal for Act of Agent; Commodity Futures Trading Commission; Transaction in Interstate Commerce”) 30 days after certification. In the case of these interest rate swap contract MAT Determinations, the requirement will be effective as of February 26, 2014.
As a result of this certification, the CFTC stated that transactions involving the specific IRS contracts and CDS contracts will be subject to the trade execution requirement, effective February 26, 2014, in addition to the IRS contracts that will be subject to the trade execution requirement on February 15, 2014, and February 21, 2014, respectively.
The CFTC noted that all transactions involving swaps that are subject to the trade execution requirement must be executed through a DCM or SEF, including swaps that are part of so-called “package transactions,” or groups of transactions that are executed together for price coordination or other reasons.
Lofchie Comment: This process seems rushed. There is no risk to the system in permitting rate swaps to be traded on the OTC market for the short run, even assuming that there is some benefit to forcing them to be traded on SEFs in the long run. Accordingly, it would seem to make more sense to force a limited group of trades on SEFs as an experiment, and to work out any kinks in that process, if there are any, before deciding how to proceed. Query: how confident are the regulators that problems (e.g., an inability of firms to trade) will not arise in the process? What are the benefits versus the risks of moving quickly?
See: TW SEF Approval and Fixed-to-Floating Interest Rate Swap Table.
Related news: CFTC Issues Trade Execution Mandate for Certain Interest Rate Swaps (January 21, 2014).
Other related news: MFA Comment Letter to CFTC on SEF Trading Rules and Onboarding Documentation (January 10, 2014); MFA Submits Suggestions to CFTC on MAT Submissions (November 26, 2013); SIFMA and ISDA Criticize SEFs’ Made-Available-to-Trade Submissions (November 25, 2013); CFTC Extends Comment Period on Certification from Javelin SEF to Implement Available-to-Trade Determinations (November 4, 2013); SEF Seeks Determination of Mandatory Exchange Trading of Swaps (October 21, 2013).