Swap Execution Facility

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Swap Execution Facility (SEF) is a regulated platform for swap trading that provides pre-trade information (bids and offers) and an execution mechanism for swap transactions among eligible participants.[1] The regulated trading of certain swaps is a result of requirements in the United States by the Dodd–Frank Wall Street Reform and Consumer Protection Act.[2] Note in particular Title VII. Following the CFTC's certification of Javelin SEF LLC's Made Available to Trade Submission (MAT Submission) on January 16th, 2014, certain swaps are now mandatory to trade on Swap Execution Facilities as of February 15th, 2014.[3]

The swaps business is very well established worldwide and swaps are routinely traded in quite robust over-the-counter (OTC) markets. Recent regulatory changes are driving reporting, clearing and settlement functions to much more tightly regulated Swap Execution Facilities.[4] This new regulatory structure, which is rapidly evolving, is causing substantial shifts in the overall swaps market structure. The SEF-execution mandate responds to one of the four derivatives-related commitments made by the G20 leaders at their Pittsburgh summit in September 2009. Other G20 members, notably within the European Union, have made or proposed similar changes in swap market structure.[5]

As of October 2, 2013 any "swap" listed by a SEF may be traded by the parties on the SEF, but may also be traded off-SEF in any other lawful matter. The "swaps" which must be traded on SEF's are both subject to a CFTC centralized clearing mandate and have been determined to be "made available to trade" (or "MAT") by at least one SEF. Four categories of interest rate swaps and two categories of credit default swap are currently subject to clearing mandates. [6]

Swap Execution Facility Regulation[edit]

  • SEC is responsible for regulating dealing and trading in security-based swaps, such as many equity swaps and credit-default swaps. Proposed rules for Security-based Swap Execution Facilities (or "SB-SEFs") are pending since 2011.[7]
  • CFTC is responsible for regulating the dealing and trading of a much wider range of over-the-counter derivatives, including interest-rate swaps, commodity-linked swaps and certain FX, credit-default and equity swaps. CFTC Commissioner Bart Chilton suggests that the primary benefits will be greater transparency, improved price formation and more concrete regulatory compliance. The CFTC's final SEF rules became effective Aug. 5, 2013 and initial SEFs began operations on Oct. 2, 2013. Previously operating swap trading platforms having multiple-to-multiple trading capability within the regulatory definition of "swap execution facility" could no longer operate legally absent an effective registration with the CFTC.[8][9] The October 2, 2013 SEF launch was facilitated by a CFTC guidance letter and several conditional and very time limited CFTC grants of relief from enforcement actions against non-compliance with certain technical elements of the CFTC's final SEF regulation.[10] However, the CFTC in its no action letters did not grant relief for SEFs from the October 2, 2013 deadline requiring swap trading venues to register. The CFTC regulations further require SEF's to report certain data arising from the execution of a swap to a swap data depository either for real-time public dissemination or confidential regulatory use. Moreover,the regulations require that if a swap is executed on a SEF, the SEF must provide written confirmation of the terms to each counterparty.[11]

Established Entities in the Swaps Trading Business[edit]

Many of the foregoing entities, directly or through affiliates, have pending or temporarily approved SEF registrations with the CFTC. [12] SEFs with temporary registrations may operate pursuant to them for up to two years while the CFTC completes a full review of the SEF's application on Form SEF.

Emerging Entities in the Swaps Business[edit]

Note: above Established Entities in the Swaps Business section is for firms that had significant swaps business ahead of the sweeping regulatory reform. The following list is oriented to newer entrants (emerging after the Dodd-Frank Act), representing less established participants. As such this section will necessarily be more illustrative than fully up to date, and likely somewhat transitory.

See also[edit]


  1. ^ "Derivatives: SEFs - Opening Bell Sounds". http://www.pwc.com/us/en/financial-services/regulatory-services/publications/derivatives-sefs-opening-bell-sounds.jhtml. PwC Financial Services Regulatory Practice, June, 2013
  2. ^ H.R. 4173, § 733
  3. ^ "The Commodity Futures Trading Commission Staff Announces Trade Execution Mandate for Certain Interest Rate Swaps". http://www.cftc.gov. The Commodity Futures Trading Commission, January, 2014
  4. ^ http://chicagofed.org/digital_assets/publications/understanding_derivatives/understanding_derivatives_chapter_3_over_the_counter_derivatives.pdf
  5. ^ "The path forward for EU-US derivatives regulation". Robert J. Dilworth, James E. Schwartz and Marissa N. Golden, International Financial Law Review, September 2013 (Euromoney Publications). 
  6. ^ "CFTC Seeks Public Comment on Certification from Javelin SEF, LLC to Implement Available-to-Trade Determinations for Certain Interest Rate Swaps". CFTC. 
  7. ^ "SEC Proposes Rules for Security-Based Swap Execution Facilities". United States Securities and Exchange Commission. 
  8. ^ "SEF Registration Requirements and Core Principle Rulemaking, Interpretation & Guidance". United States Commodity Futures Trading Commission. 
  9. ^ Swapping Opinions, FIXGlobal, September 2011
  10. ^ "CFTC Issues Guidance, Exemptions In Advance of SEF Rule Compliance Date". Peter Y. Malyshev et al., Latham & Watkins LLP Derivatives Practice, October 17, 2013. 
  11. ^ "Derivatives: CFTC Shutdown, SEFs Open". http://www.pwc.com/us/en/financial-services/regulatory-services/publications/sefs.jhtml. PwC Financial Services Regulatory Practice, October, 2013. 
  12. ^ "Industry Submissions - Trading Organizations - Swap Execution Facilities (SEF)". CFTC. 

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