Home » Story
You have been granted access to this page through First Click Free. Subsequent use of TabbFORUM will require logging in. If you don't have an account, registration is free.

Videos

  • Rail_thumb_philippe_carre-sungard-turkey

    Turkey: The Modern Capital Market

    Turkey has been on traders' radar as a growth market for some time, but the perception has been that it is difficult to access and its technology is antiquated. Now, however...
     
  • Rail_thumb_jeanette_turner-advise_technologes-regulatory_red_tape

    Cutting the Red Tape in Regulatory Reporting

    Now that smaller hedge funds and private equity firms have filed Form PF, managers are turning their attention to Commodity Pool Operator - Pool Quarterly Reports, many for the first...
     
  • Rail_thumb_salt_lake_city

    Why Goldman Loves Salt Lake City

    Salt Lake City is Goldman's fastest growing office. By the end of the year, it will be bigger than the company's Hong Kong office. Bloomberg Television's Erik Schatzker...
     
 

More Video | Podcasts

Advertisement
Missing
Alex Wolcough

Etrading Software Ltd

More From
Alex Wolcough

05 March 2013

Dodd-Frank: The Problem With Switching On the SEFs

The CFTC is likely to switch on its rules governing swap execution facilities any day now. But for dealers, making the necessary connections to trade OTC products on electronic platforms is easier said than done.

Any day now, the CFTC will make a decision as to when the rules for Swap Execution Facilities (SEFs) will come into force. These rules will drive trading of interest rate swaps and credit default swaps onto several new electronic trading platforms, all within a short time frame.

Setting up electronic trading for OTC markets such as fixed income, however, is more complex than trading on exchanges.

Looking at the dealer-to-client (D2C) markets as an example, dealers need to establish relationships and connections with both the trading venue and their clients before they can trade on an electronic platform like SEFs. In order to reach their entire client base, dealers will need to access several trading venues at the same time.

[Related: "Interest Rate Swap Futures: Finally the Right Time"]

Further, these relationships can get quite detailed, with specific controls governing which products can be traded. In addition, other information, such as sales coverage, needs to be configured in the trading venues’ systems.

Manual Process

It is vital that this area of the business is managed carefully, but managing these trading relationships is complex and involved. Yet today, enabling a client to trade with a dealer on these OTC trading venues is largely a manual process. Each trading venue has its own user admin screen, where the dealer’s client administration staff key in the details of each client trading relationship, often manually entering the same data multiple times when the relationship is replicated across multiple venues.

With the complexity of this relationship data, the presence of a significant number of manual processes and no common format to bring this data together, many dealers face a huge problem of accurately knowing which relationships are enabled across each of the electronic trading platforms that they use and ensuring that this is accurately maintained.

Industry Action

Fortunately, the financial industry has recently seen better cooperation among the banks to look at issues in non-competitive areas that can be solved collectively, with the benefit of wider insight as well as shared cost. Accordingly, faced with a huge wave of permissioning activity as the SEFs come online, a group of dealers has taken the initiative by looking at ways to standardize the process and come up with a common computer interface for enablement.

The Trader Enablement Standardization Initiative (TESI) expects that by defining a standardized permissioning protocol, dealers will be able to automate the permissioning process with the venues. This will not only allow the dealers to speed up the process of switching on relationships on the new platforms, it also will improve accuracy and reduce operational risk.

Whenever the CFTC chooses to switch on the SEFs -- and everyone is expecting that to happen this year -- the timelines to implement a solution will be tight. The TESI is already working to an aggressive schedule and expects to have the standards in place by May 2013, well before the SEFs go live, giving the banks and key venues time to implement.

Etrading Software is an established capital markets IT consultancy that facilitates and delivers client-specific and industry-wide solutions.

Comments | Post a Comment

7 Comments to "Dodd-Frank: The Problem With Switching On the SEFs":
  • Missing
    barney

    06 March 2013

    Dear Alex,

    you seem to assume that sef will all be electronic. My understanding is that this is one of the most controversial aspects of the current negotiations on the SEF rule ("any means of interstate commerce" says Dodd-Frank.). Electronic trading will progress independently whether SEF rules require it or not. 

    Comments (16)

  • Missing
    fblum

    06 March 2013

    Thanks. However, I would like to know more about TESI. Except etradingsoftware.com, there are no websites explaining what this initiative is about, and what are the financial entities involved.

    Comments (1)

  • Missing
    wolcougha

    06 March 2013

    Hi Barney. Electronic Trading is definitely progressing and the enablement issue isn't limited to just IRS and CDS on SEFs.. It covers most OTC markets. I think it would be fair to say that the dealers foresee a big enough move to electronic trading for IRS/CDS to do something about it now..  

    Comments (3)

  • Missing
    barney

    06 March 2013

    wolcougha, my point exactly. and without the straightjacket of a SEF, it will provide more utility, more quickly.

    Comments (16)

  • Missing
    wolcougha

    06 March 2013

    Hi fblum. We do have a small amount of information in the Projects area on our website but please do contact us directly if you would like to know more.

    Comments (3)

  • Comment_barry_linkedin_headshot_1
    Carveout

    06 March 2013

    Alex,

    It was my understanding that FIX was going to be utilized to trade Swaps much like they are utilized to trade equities and other asset classes.  Are you referring to more standardization of T&Cs using something like XML? This sounds all too familiar as in the same problem that spawned a solutions called EMSs and FIX standardized APIs.

  • Missing
    wolcougha

    06 March 2013

    Hi Carveout. The trading protocols have already been covered. There has been some good work done by FIX Protocol Ltd and FpML. The focus of TESI is not about describing the instrument and trading the instrument, but simply the process of enabling the trading relationship.

    Comments (3)

You must log in to comment.