Bloomberg SEF: One Year Later

Terry Flanagan

One year after the Commodity Futures Trading Commission issued rules for swap execution facilities, Bloomberg has reported that multi-asset swap execution facility, Bloomberg SEF, executed more than $6.6 trillion in transactions during its first year of operation.

Since the CFTC’s SEF rules went into effect on October 2, 2013, nearly 150,000 trades were completed on Bloomberg SEF across multiple asset classes, including interest rate swaps (IRS), credit default swaps (CDS), and foreign exchange (FX) and commodity derivatives, the company said in a release.

“We’re very pleased with how SEF trading has gone so far,” George Harrington, global head of fixed income, FX and commodity trading at Bloomberg, told Markets Media. “There was obviously a huge push to get the accounts on-boarded last October, and again in February and March with the MAT determinations that required certain transactions to be conducted on SEF.”

According to the most recent Futures Industry Association data, Bloomberg SEF had about 75% market share in credit-default swaps as of late July, followed by Tradeweb with 9% and GFI with 6%. In interest-rate swaps, ICAP’s IGDL has led with a market share as high as 30% — other SEFs with double-digit shares were Tullett Prebon, Tradition, Tradeweb, BGC, and Bloomberg.

Industry participants and observers have noted that SEF trading has started slowly overall, and reported volume numbers are small relative to the potential of the market. Accordingly, current SEF market shares aren’t necessarily indicative of who will be the longer-term leaders in the space, which needs to winnow from its current roster of more than 20 players.

The emergence of ‘packaged’ trades allowed participants to better mitigate risk. Although request-for-quote trading still dominates the market, participants recently began using order book trading with increased frequency. The Bloomberg SEF allows anonymous order book trading from execution through post-trade confirmation, the company says.

“New accounts are continuing to join our SEF and people are getting very comfortable with the trading protocols,” Harrington said. “Participants are primarily using the request for quote system although we are seeing increased order book activity in recent months. To date, it’s been a very good start.”

Credit default and interest rate swaps comprised the vast majority of Bloomberg SEF transactions. Approximately 85,000 CDS transactions totaling $3.45 trillion and 48,000 IRS transactions totaling $3.15 trillion were executed on Bloomberg SEF in the past year.

The Bloomberg SEF supports both request‐for‐quote and order book trading functionality. “The majority of transactions are comprised of interest rate swaps–primarily vanilla coupons and market agreed coupons–and credit default swaps,” Harrington said. “We are also seeing strong activity in some of the package trades, including swap butterfly and swap curve trades.”

The CDS indices are already generally Made Available to Trade, noted Harrington. “That’s where we see a tremendous amount of volume,” he said. “On the first day of trading in the new CDX series, we saw over $100 billion in transactions. The only outstanding issue is when the SEC will move towards mandating single-name CDS for required trading, but we don’t really have a sense of when that is likely to happen.”

Bloomberg also launched this year its swap data repository (SDR), a centralized record-keeping facility that provides a cost-effective solution to collect, store and publicly disseminate multi-asset derivatives trading data.

It also plans to register as a multilateral trading facility (MTF) in Europe to help customers comply with MiFID and Emir guidelines, and expanding our solutions in Asia as regulations in the region evolve.

“Our goal is to be a global provider of regulated trading environments,” Harrington said. “In Europe, we’re preparing for the MTF/OTF requirement which may go into effect in late 2016 or early 2017. In Japan, mandated electronic trading will begin in September of next year. Bloomberg will definitely be at the forefront to ensure we’re giving our customers the ability to trade electronically wherever it is regulated and mandated.”

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