This is the first announced equity swap focused SEF I’ve come across. The people at the help of this company come from Goldman Sachs electronic trading and have an interesting approach that is worth keeping an eye on. I’m sure there will be many more SEF announcements to come in the the next few months, but there’s a lot of opportunity to go around.
Kevin McPartland, a senior analyst at TABB Group who has been following the development of SEFs closely, said this team has found a niche not yet cornered by any other potential competitor. He did note, however, that their focus on the sellside may change as the market landscape changes with coming regulation. “What constitutes a dealer in the new world?” he asked. “That really changes the game.”
Doesn’t sound like anyone is particular excited about the bill passed last week in the Senate. Even only half of the Senate (the Democrats) seems to like the final product. My comments in the article:
Some industry professionals believe Sen. Blanche Lincoln’s provision requiring banks to spin off their swaps desks will get kicked out when the bill is merged with the less restrictive House version in June. “It seems pretty widely believed that when they go to conference, the house will take it out,” said Kevin McPartland, a senior analyst at the TABB Group in New York told Derivatives Week.
Is it clear to anyone yet that I don’t like the Lincoln OTC derivative proposal?
Kevin McPartland, senior analyst at the TABB Group in New York, said it depends on how the rules are written. “If they force [dealers] to completely spin them off, that just won’t work,” he said. The idea, he said, is also incompatible with the requirement for over-the-counter trades to be centrally cleared since users are required to put up a significant amount of capital to clearinghouses, whereas cutting the entity off from the commercial bank would reduce their access to capital. “Would the individual swaps desks have enough capital to be members of the clearinghouses?”
We should get much more information about the Senate’s view on OTC derivative reform on Friday when the first amendment to the bill is expected. In the meantime:
While most derivative pros did not expect the broader definition in Dodd’s revised bill, they believe the Reed-Gregg amendment will focus heavily on exemptions. “The way it feels to me is…the true end-user firms, the non-financial corporate firms, airlines, construction companies, etc…believe they will mostly in the end be exempt,” said Kevin McPartland, a senior analyst at TABB Group. “There are too many downsides [to forcing clearing on them]. I do think they will put language that will include a lot of the major hedge fund and buyside firms that are heavy into derivatives.”
Full article at DerivativesWeek.com (subscription)
This story came out of a conference I participated in yesterday put on by Markit. Creating a “tape” for OTC derivatives was a big topic of conversation, especially when it came time for CFTC Chairman Gensler to take questions. Excerpts from the story:
“They are looking at this like an exchange-traded market focused on the retail investor like in equities. It can’t be that way in OTCs because there’s not enough liquidity in any one product at any given time,” explained Kevin McPartland, senior analyst at TABB Group.