Mandatory Swap Trading on Radar

Terry Flanagan

Calypso Technology, a provider of an integrated capital markets platform, has extended its over-the-counter (OTC) clearing platform for end-users to support Swap Execution Facility (SEF) connectivity. As a first step in providing derivatives end-user clients access to SEFs for derivatives trading and execution compliance, Calypso is interfacing with TW SEF from Tradeweb Markets, a provider of fixed income and derivatives marketplaces, to offer an out-of-the-box request-for-quote (RFQ) and order book integration solution.

With mandatory SEF trading projected in February 2014, Calypso Technology is providing its clients the ability to automate cleared swap execution.

SEFs were mandated to be compliant with Dodd-Frank rules on October 2, 2013. Calypso added this functionality into its OTC End-User Clearing platform, using the flexible architecture of the Calypso platform that allows addition of asset classes, clearing functionality and interfaces to help clients keep in step with regulation.

“We’re excited to be among the first in the market to offer our clients this support for SEF trading and execution with Tradeweb Markets,” said Charles Marston, chairman and CEO of Calypso. “Derivatives end users look to Calypso during these times of dynamic change in the derivatives trading landscape. More than ever, financial organizations require workflow efficiency, aggregation of trading, processing and clearing on a single platform, greater compliance and risk management as they seek to adapt and benefit from the new derivatives market structure.”

The extension of the Calypso platform ensures clients will have direct connectivity between Calypso and Tradeweb Markets’ TW SEF for Interest Rate Swaps and Credit Default Swap Indices. The platform supports straight-through-processing for clearing workflows and prevents double entry of trade details. Features include connectivity between Calypso and Tradeweb via FIX Messages, trade execution via Tradeweb, and trade novation through Calypso triggered by cleared messages from Tradeweb.

“Tradeweb is a global leader in providing institutional investors with efficient, flexible access to liquidity in the evolving derivatives marketplace,” said Billy Hult, president of Tradeweb Markets. “By integrating with partners like Calypso, we can continue to deliver a seamless electronic end-to-end workflow that reduces manual entry errors and increases productivity.”

Four SEFs have made filings with the CFTC for determinations that certain types of interest rate and index credit default swaps are “made available to trade.” The CFTC will determine whether to approve these “made available to trade” determinations in January 2014. If approved, those determinations will become effective in the manner specified by the CFTC, according to a client alert by law firm Bingham.

Earlier this year, several firms signed up for access to SEFs as a result of the separate requirement that a multiple-to-multiple trading platform that meets the definition of an SEF must register as such by October 2, 2013., according to Bingham.

Firms that are able to trade on SEFs currently have the option – at least theoretically – to trade bilaterally with counterparties. But that option will no longer be available for swaps that are covered by an effective “made available to trade” determination. Firms therefore should consider watching out for “made available to trade” determinations, starting with the four proposals that are currently in the queue, Bingham said.

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