02.03.2012
By Terry Flanagan

SEFs Prepare To Self-Police

National Futures Association to provide surveillance and other regulatory functions.

The futures industry is preparing to provide regulatory services on behalf of swap execution facilities, or multidealer platforms for matching buyers and sellers of OTC derivatives.

The CFTC has proposed to allow SEFs to contract with a registered futures association, such as the National Futures Association, for surveillance and other regulatory services.

NFA and MarketAxess Holdings have entered into an agreement that paves the way for NFA to perform regulatory services for MarketAxess’ planned swap execution facility (SEF).

The agreement establishes a preliminary framework for the exchange of information and the development of technology standards that will enable MarketAxess and NFA to develop, test and launch automated trade practice and surveillance systems and also to develop procedures and processes necessary for MarketAxess to fulfill its SEF self-regulatory obligations.

“The current agreement covers pre-launch services such as building appropriate systems, establishing testing connectivity, and creating reports in preparation of the services that will be performed once the SEF becomes operable,” MarketAxess told Markets Media in e-mailed comments. “The formal Regulatory Services Agreement will address the ongoing surveillance and monitoring services that NFA will provide.”

The agreement establishes a preliminary framework for the exchange of information and the development of technology standards that will enable MarketAxess and NFA to develop, test and launch automated trade practice and surveillance systems and also to develop procedures and processes necessary for MarketAxess to fulfill its SEF self-regulatory obligations.

According to MarketAxess, NFA’s services will not be provided exclusively to MarketAxess. “It is our understanding that the NFA has engaged several other planned SEFs for comparable services,” the company said. “The systems utilized by the NFA are their [intellectual] property, but any data or work product created on our behalf is MarketAxess’ property.”

NFA, the self-regulatory organization of the futures industry, has been holding discussion with the CFTC on the estimated cost impact to swap dealers and major swap participants of the CFTC’s delegation to NFA of the registration function for swap dealers and major swap participants under the Dodd-Frank Act, and the estimated cost impact associated with NFA’s ongoing monitoring of SDs and MSPs.

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