Swap Execution Facility

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Swap Execution Facility (SEF) is a platform for swap trading regulated by the Securities and Exchange Commission and the Commodity Futures Trading Commission 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 (in particular Title VII).[2] After the CFTC certified Javelin Capital Markets SEF's Made Available to Trade (MAT) Submission on January 16, 2014, certain swaps were required to trade on SEFs as of February 15, 2014.[3]

The swaps business is well established worldwide and they are routinely traded in robust over-the-counter (OTC) markets.[citation needed] However, regulatory changes are driving reporting, clearing, and settlement functions to SEFs, which are much more tightly regulated.[4] This new, rapidly evolving regulatory structure is causing substantial shifts in the overall swaps market. The SEF-execution mandate responds to one of the four derivatives-related commitments made by the G20 leaders at the September 2009 summit in Pittsburgh. 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 that must be traded on SEFs are both subject to a CFTC-centralized clearing mandate and have been determined to be "made available to trade" (MAT) by at least one SEF. Four categories of interest rate swaps and two categories of credit default swaps are currently subject to clearing mandates.[6]


  • The Securities and Exchange Commission (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 (SB-SEFs) have been pending since 2011.[7]
  • The Commodity Futures Trading Commission (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 swaps, and equity swaps. CFTC Commissioner Bart Chilton suggested that the primary benefits will be greater transparency, improved price formation, and better regulatory compliance. The CFTC's final SEF rules went into effect in August 2013 and the first SEFs began operating in October 2013. Previously operating swap trading platforms with multiple-to-multiple trading capability within the regulatory definition of "swap execution facility" could no longer operate legally without registering with the CFTC.[8][9] The SEF launch on October 2, 2013, was facilitated by a CFTC guidance letter and several conditional and time-limited grants of relief from enforcement against non-compliance with certain technical elements.[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. Regulations require that if a swap is executed on a SEF, the SEF must provide written confirmation of the terms to each counterparty.[11]

Entities in the swaps industry[edit]

Established entities[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 for up to two years while the CFTC completes a full review of the SEF's application on Form SEF.

Emerging entities[edit]

Note: above established entities 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" (PDF). 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" (PDF). 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. 

External links[edit]