Massad: let market decide what it wants from Sefs

Voice v electronic execution decision left to market participants

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Timothy Massad, CFTC

US Commodity Futures Trading Commission (CFTC) chairman, Timothy Massad, says he is happy for the market to decide whether it wants to execute derivatives trades via voice or electronic execution when trading on swap execution facilities (Sefs).

While some market participants have complained that dealers have sought to retain voice trading as a way to stall the take-up of fully electronic central limit order book (Clob) execution, where banks can be disintermediated, Massad says he is happy to leave it up to the market to decide which way it wants to trade.

"The law certainly didn't mandate that [promote a move from voice to electronic execution], and our rules don't mandate that. I think what we are trying to do is implement a framework that requires transparent trading that promotes integrity in the trading process, and that allows for different execution methods at this time. And then we will see how the market evolves," said Massad, speaking with Risk before the Prime Finance conference in The Hague.

"As long as it is in our rules, I think it is a good thing. This is all still very new – Sef trading is only a few years old, and I think that at this point our rules should allow for some variety. We'll see how practices develop [and] we'll see what the market wants," he added.

His comments come after the CFTC declined to intervene in the debate last year around post-trade name give-up on interdealer broker Sefs. Buy-side traders had complained that revealing their identity to a dealer after execution on a broker Sef may lead to punishments – either for the buy side via a trade breakage, or for the Sef via reduced trade flow.

In April last year, Massad expressed concern about these allegations, but in October he said there were many views on the issue, and that the commission would not be taking any action.

More recently, some Sefs had also questioned whether rival platforms were fully compliant with the requirement to offer both request-for-quote and Clob trading. However, the CFTC granted full Sef registration to 18 platforms last week – an indication it doesn't intend to interfere unless rules are explicitly broken.

Five Sefs are still left with temporary registrations, however. While there is a February deadline for permanent registration, Massad said those Sefs will be allowed to continue to operate under temporary registration status in the meantime.

"We weren't able to act on their applications for a variety of reasons that varied depending on the Sef, but some of them had not completed their applicant material and they hadn't provided us with all the information they needed to... We've been in touch with them, we've been working with them, and as they provide us with the information we need, we will be able to act on their applications," he said.

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