CFTC Grants Registration to 18 SEFs
Commentary by Steven Lofchie
The CFTC granted full registration to 18 swap execution facilities ("SEFs") that previously were operating under temporary registration status. The SEFs will be required to demonstrate continued compliance with all applicable CEA provisions and CFTC regulations, including Part 37. CFTC staff will continue conducting registration reviews for the remaining five SEFs that are currently temporarily registered.
Speaking before the ABA Derivatives and Futures Law Committee Winter Meeting in Florida, CFTC Chair Timothy Massad remarked that "[t]hese registrations represent continued progress toward the implementation of a new framework for trading on regulated platforms, as called for by Dodd-Frank and the G-20 leaders . . . [and] that SEF trading has brought improved trading conditions, significantly lower transaction costs and better liquidity."
In a separate statement, CFTC Commissioner J. Christopher Giancarlo asserted that "[t]he staff's work was made unreasonably more complicated by having to apply the CFTC's misconceived swaps trading rules to the distinct liquidity characteristics, long-established market practices and sophisticated market structure of the global swaps markets." He declared that "[i]t is past time to align the CFTC's swap trading regulatory framework with the clear mandate of Title VII of the Dodd-Frank Act."
Commissioner Giancarlo further pointed out that the CFTC's dependence on a "hodgepodge of workarounds confirms . . . that the CFTC's flawed swaps trading rules are broadly mismatched to the inherent structure and workings of the global swaps markets."
Commentary
It is not clear whether the SEFs' changes in status from "temporary" to "permanent" registration has any significance to a better functioning market. The important issue, as Commissioner Giancarlo emphasizes, is whether the rules are good rules, and that means whether they are good rules for products of different types and liquidities. In other words, the type of market that serves plain-vanilla interest rate swaps is likely not the same kind of market that works best for illiquid products.
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