Now its official – both major market data providers are in the SEF game. Bloomberg showed as “most likely to succeed” in TABB’s SEF Industry Barometer in the spring. But admittedly that study was focused on credit and rates trading whereas Thomson Reuters is in the FX game. Regardless, both of these firms have a lot behind them and as good a chance as anyone to make a run for king of the SEFs.
“As the industry adjusts to the new rules, businesses will be looking to seamlessly integrate with dozens of new touch points including SEFs, clearing houses and swap data repositories while working to stay compliant and profitable in this increasingly automated world,” said Kevin McPartland, a principal and the director of fixed income research at TABB Group.
Another article looking at the new proposed margin rules from the FDIC and CFTC. The debate here is if end-users, say Exxon, could start marketing swaps to hedgers and compete with the banks as they won’t have to comply with the new margin rules as an end-user. I argue that as soon as they start trying to get into the market making business, they’re no longer an end-user and should be classified a dealer making the point moot.
Not sure what my quote says is obvious in the context it was used, but basically bank lobbyists will never let end-users get away with making markets without being classified as a major swap participant or dealer. The loophole is just too big. There are a number of other issues at play here too, and this article does a good job of stepping through them.
“It will come back to these firms losing their ability to call themselves end-users based on their trading practices. The bank lobbyists will never let this fly,” said Kevin McPartland from TABB Group.
Back from vacation…
This is a new twist on an old story. We’ve all been wondering since 2008 how the smartest people on Wall Street didn’t see the credit crisis coming (well, some did but most obviously did not). This story highlights a dispute between MS and GS regarding an OTC derivatives transaction back pre-crisis and debates whether anyone will want structured products anymore. Yes, there will still be demand for structure products, but the world’s appreciation for transparency and standardization will ensure that cleared products will take over in many cases.
“It’ll have to become a lower margin, higher volume business,” said Kevin McPartland, a senior analyst at consulting firm TABB Group who focuses on derivatives.
The SEC is set to release its SEF rules tomorrow, Feb 2, 2011, and only a small few details are floating around. Since they will be overseeing the less liquid single name CDS market I’d suspect they’ll focus more on the RFQ model than order book trading. My comments in the article, saying essentially, we don’t know yet:
“Apparently this is quite a mystery even to those in the industry very close to the situation,” said Kevin McPartland, a senior analyst with the TABB Group and an expert on SEF regulation.
The SEF debate is certainly heating up. These questions and more will all be discussed at the WMBAA’s “SEFCON 1″ event in DC on October 4th (details to follow). My comments in the Reuters piece:
“The law calls it “a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce.”
“If the word ’swaps’ was replaced with ‘goods’ this could be a description of eBay,” wrote Kevin McPartland, an analyst with TABB Group, in an article submitted to regulators last month.
The recent proposal by Senator Lincoln isn’t bad because it will cost banks, but because it is ignores how the OTCderivative markets function. Its pretty obvious from my comments I’m against most of what she’s proposed here. It feels as if she’s ignoring everything Congress has learned since early 2009, most of which came through in the House bill. Some excerpts:
“This is a back-door way to reinstate Glass-Steagall without actually doing so,” McPartland said.
“For the swap desk to be successful and continue providing the service they do, it’s important that they have bank capital behind them,” McPartland added.