Market participants expected clarity in March, and since draft rules were issued in early 2011, the CFTC has missed numerous deadlines, Risk.net reports.
“As an agency, we have been neglectful in not finalizing a rule,” CFTC Commissioner Bart Chilton said, according to Risk.net. “Many of these platforms that will be SEFs are ready to go—they just need to know the rules. Meanwhile, there is a futurization of swaps going on, where swaps are starting to be traded as futures. That should not be occurring due to our agency’s inaction and our lack of producing a final SEF rule.”
Swap futures are subject to lower block-trade thresholds and margin requirements, causing panic among potential SEFs and fear that the trend could overtake their business. Wayne Pestone, the CRO at Washington, D.C.-based FXall, said CFTC guidance is necessary to ensure platform providers are able to license their applications.
“Potential SEFs are concerned about how the use of swap futures is growing and the impact this will have on their ability to compete on equal terms,” Pestone said, Risk.net reports. “We are worried the swaps market won’t be viable by the time SEFs are launched this year.”
Much of the uncertainty centers around how many counterparties should be sent a request-for-quote through an SEF. Some have indicated that an initial proposal of a minimum five dealers should be reduced in the final rule.
“It could be a real concern when we’re this close to the finish line, and it could be a real problem for many of the platforms,” Pestone said, according to Risk.net. “It’s causing a lot of angst because we’re still awaiting final rules. That’s a perfect example of something that could change at the last minute and cause problems for many SEFs.”