Transparency Transforms OTC Markets

Terry Flanagan

With the completion of nearly all of the Commodity Futures Trading Commission’s rulemaking and the initial major compliance dates behind it, the marketplace has been transformed, outgoing chairman Gary Gensler said at Monday’s SEFCON IV conference.

Real-time clearing is now a reality with 99 percent of swaps clearing within 10 seconds and 93 percent actually doing so within three seconds. Approximately 70 percent of newly entered interest rate swaps and over 60 percent of credit index swaps are being cleared.

“The playing field has been leveled through transparency, impartial access, central clearing and straight-through processing,” said Gensler. “Asset managers, pension funds, insurance companies, community banks and all market participants are gaining benefits that until recently only swap dealers had.”

Gary Gensler, CFTC

Gary Gensler, CFTC

Last week, CFTC staff issued guidance reminding SEFs of their core responsibility: the Commission’s regulations require SEFs to provide all its market participants – dealers and non-dealers alike – with the ability to fully interact on order books or request-for-quote (RFQ) systems.

SEFs are required to provide dealers and non-dealers alike the ability to view, place or respond to all indicative or firm bids and offers, as well as to place, receive, and respond to RFQs.

In addition, the CFTC has issued an advisory addressing how its rules apply to foreign swap dealers operating in the United States.

If a foreign-based swap dealer has personnel in New York and they regularly arrange, negotiate, or execute swaps in the United States, then the transactions come under Dodd-Frank requirements. As the advisory stated, these activities are “core, front-office activities” of a swap dealer’s dealing business.

“In other words, a U.S. swap dealer on the 32nd floor of a New York building and a foreign-based swap dealer on the 31st floor of the same building, have to follow the same rules when arranging, negotiating or executing a swap,” Gensler said.

Separately, Icap and Clarus Financial Technology, a provider of services to the global derivatives market, have launched a new OTC data. Under the new agreement, Clarus will distribute Icap’s derivative pricing within Clarus’ SDRView – Professional.

Icap Information Services (IIS) has provided the data in order to articulate an aggregate view of best bid/ask levels across Icap’s on/off SEF marketplaces for each currency and product once each hour. Clarus is overlaying this pre-trade transparency on its comprehensive, intra-day analysis of aggregated Swap Data Repository (SDR) post-trade reporting.

“In the new Dodd–Frank environment, mandated post-trade transparency is a requirement, and the Icap information on Clarus’ SDRView accurately meets those needs by reflecting price levels at which the market is formulating its “next” trade,”
said Mark Beeston, CEO of portfolio risk Services for Icap. “We look forward to working with Clarus and offering this exciting new product to our customers.”

Icap Information Services, a unit of Icap’s Post Trade Risk and Information division, provides data services across all key asset classes and offers innovative solutions for real-time, end-of-day and historical products.

“By creating a single screen that brings together in real-time the last trades executed under US regulations to the DTCC Swap Data Repository, alongside the consensus pre-trade prices from Icap, we believe we are creating a unique and must-have destination,” said Amir Khwaja, CEO of Clarus Financial Technology. “By delivering all this in a Web Browser, we are creating a new level of transparency and open access for such data.”

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