SEF Users: Anonymity, Please

Terry Flanagan

The practice of name give-ups on some trades executed via swap execution facilities is hampering buy-side acceptance of the trading venues.

Timothy Massad, chairman of the U.S. Commodity Futures Trading Commission, has stated that the agency will look into the practice in which traders’ identities are disclosed during post-trade processing, when they were intended to remain anonymous.

“The big issue is to what extent the CFTC will require anonymity of trading on SEFs,” Robert Pickel, former CEO of the International Swaps and Derivatives Association, told Markets Media. “Right now, although at least seems like a lot of SEFs are poised to provide it. Certainly the buy side wants it and even the sell side is not standing in the way. Nobody seem to want to jump, to be the first one to jump.”

Pickel, who recently joined the board of the Tradition SEF as a non-executive director, will discuss fixed income market structure and regulatory issues at Markets Media’s Fixed Income Trading & Investing Summit on May 5.

Post-trade name disclosure nevertheless continues to occur as a routine practice on interdealer broker SEFs. When a swap trade is executed by voice brokerage, the IDB SEF typically discloses by telephone to each transacting party the name of the other party to the trade. When the swap is executed electronically, the IDB SEF typically sends an on-screen execution message to each transacting counterparty that discloses the name of the other party to the trade.

Determining whether SEFs will fulfill their intended purpose under the Dodd-Frank Act won’t be clear until the anonymity question is resolved. “People want to have some indication from the CFTC that they will require that everybody’s more or less on a level playing field,” Pickel said. “Once you see that you’ll begin to see which SEFs are there for the long haul and which SEFs may fall by the wayside.”

Liquidity and capital are the two major issues confronting fixed income markets. “We can get all these SEF rules right, we can all these clearing rules right, we can get all these reporting rules right,” Pickel said. “But if capital rules create such a disincentive to trade a certain product or to trade in a certain way, it will just not be cost effective for people to trade.”

As for liquidity, “everybody would agree that liquidity is less than what it was,” Pickel said. “Is this a temporary thing in part by virtue of the fact that you have rules in the United States that are fully effective and then rules in Europe that are not fully effective? Right now I think everybody would agree, yes, liquidity is impaired. Perhaps it’s temporary. The question will be once everything’s in place around the world, will we be able to return to some level of consistent liquidity around the world.”

Featured image via andreusK/Dollar Photo Club

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