Gensler not ruling out targeted Sef relief

CFTC chairman recognises difficulty in meeting October 2 Sef deadline, but says platforms need to be targeted in requests

The Commodity Futures Trading Commission (CFTC) may entertain requests from individual, would-be swap execution facilities (Sefs) for a delay to an October 2 registration deadline – but firms must be specific with their requests, and a broad delay is unlikely, according to Gary Gensler, chairman of the agency.

Speaking at the International Swaps and Derivatives Association annual European conference in London this morning, Gensler said he recognised many trading platforms are experiencing problems in preparing for the October 2 deadline. A particular industry concern is the addition of a new footnote in the final rules, published on May 16, which obliges all multiple-to-multiple platforms to register, even if they only offer products that aren't yet required to trade on Sefs. That has led to a last-minute dash by some venues to complete their registrations and on-board clients in time.

Gensler acknowledged there may well be a transition period, and advised Sefs to be specific in their requests for time-limited, no-action relief.

"What I ask of you is to be targeted in your requests. We've looked at time-limited relief well over 100 times already – or, as they are known in our vernacular, no-action letters. In essence, working with market participants, is there a need for a month, is there a need for three months, sometimes six months to get something done? We are aware of some issues – whether it is how the pipes are between Sefs and clearing houses work, and some of the pipes between Sefs and data repositories work. We want to sort through those things, but on October 2, we will have at least a dozen, and I think 15 to 18 Sefs that are registered," he said.

"Remember to help us in this transition. You have to be targeted. If you come in wide, it's a little hard," he added.

You have to be targeted. If you come in wide, it's a little hard

The Sef rules have had other implications, however. Market participants claim that some non-US electronic trading venues – especially multilateral trading facilities (MTFs) in Europe – have asked US entities, including foreign branches of US banks, not to participate on their platforms, in an effort to avoid having to register as Sefs. This has had a knock-on effect on liquidity, with the market effectively split between US and non-US entities, participants claim.

In a later keynote address at the Isda conference, Martin Wheatley, chief executive of the Financial Conduct Authority, acknowledged the concerns, and said regulators would need to address the issue in the run-up to the October 2 deadline.

"We've had that discussion around the requirement for swap execution facilities to be registered and the impact that was having on MTFs in Europe, which in some cases are thinking about how they split their business in order to be able to comply with the Sef rules. If the outcome of applying two sets of rules is less efficient markets, then frankly we, as regulators, need to address that. So the way to address that is to do what many of you do and put the case forward as to how it undermines the principles we are trying to achieve. Then we negotiate – we get in a room and sometimes it is hard, but we negotiate and try to get to an outcome that works for both sides. But don't pretend for a second this is quick or easy stuff," he said.

Responding to a question from Risk, Gensler also acknowledged the issue, but pointed out that many of the Sefs that had already registered are active in both the US and Europe.

"I am aware that has been raised. When we look at the 18 or so applicants to be swap execution facilities, it includes by and large all of the known significant trading platforms, some of which operate out of both Europe and the US. If there is a trading platform that thinks it has an issue, it should come in, it should talk to us and some of them may well be registering already. The first step is just to have them register, and Congress was pretty clear – they repealed this exemptive authority, so I don't have exemptive authority," he said.

Separately, Gensler said US government funding constraints had put huge pressure on CFTC staff – particularly in their efforts to review and approve Sef applications.

"We're ploughing through 18 Sef applications right now, and the truth is we're giving them a cursory review. I can't say we're doing any deep dives on these things. But we're going to get the job done as best we can," he said.