SEF Day: A boring October 2 is official, but in 10 seconds or less

By | September 30, 2013

Quite a lot of hoop-la on Friday (September 27, 2013) around the October 2 SEF implementation deadline. On that point, the response to my post on the CFTC de-electronifying the market has been mostly positive.

And it looks like the CFTC decided to listen to all of us wanting October 2 to go smoothly, providing no-action relief for about a month. Still not ideal, but better an nothing.

I want electronic trading in the swaps market as much as anyone. It makes for much more interesting research (oh, and efficient markets). But we need to get there in an orderly fashion. Some press quotes from last week:

From the FT:

Kevin McPartland, principal at Greenwich Associates said: “The goal of the CFTC is to create an orderly and functional market. At the moment there is a risk that liquidity fragments and derivatives trading moves further away from being a global market to a more regional based environment and I don’t think that was the intention of the CFTC.”

And from Bloomberg News:

Greenwich Associates, a consulting firm, said the move to SEFs will reduce trading costs and make buying and selling the swaps easier for bank clients such as asset managers and hedge funds, according to a Sept. 18 report.

“They will benefit from tighter spreads and access to more liquidity providers than were available to them in the OTC market,” Kevin McPartland, head of market structure research at the consultant, said in the report.

On a related note, the CFTC has taken the requirement that trades must be accepted by the FCM in 60 seconds down to 10 seconds. The market should be this fast and the technology certainly exists to do it, but we need to leave some room for growing pains out of the gate. But this is a topic for another post on another day. Happy SEF implementation week.