The U.S. Commodity Futures Trading Commission (CFTC) is poisedto push interest-rate and credit swaps onto trading platformsdesigned to make prices more transparent and competitive.

The agency's approval would follow a three-month review of plansto mandate that certain types of trades be conducted on swapexecution facilities, or Sefs, including those owned by JavelinCapital Markets LLC and trueEX LLC. The change, required under theDodd-Frank Act, could take place as soon as next month.

The mandate “is a real fundamental shift,” Kevin McPartland,head of market structure research at Greenwich Associates, said ina telephone interview. “It's going to impact how the clientsinteract with the banks on a day-to-day basis.”

The CFTC's staff, which is still reviewing the plans, has foundno reason to object to them so far, according to two people withknowledge of the agency's deliberations. To prevent therequirements from taking effect, the agency would need to decidethey are inconsistent with the law and block the first of them byJan. 16.

Dodd-Frank, the 2010 financial-regulatory overhaul, seeks toincrease access and price competition in the swaps market by havinginterest-rate, credit-default, and other types of swaps trade onSefs. Largely unregulated swaps helped fuel the 2008 credit crisisand the U.S. rescue of American International Group Inc.

Ready Participants

Javelin, the first platform to submit trades for the mandate,said in its filing that CFTC-registered swap dealers, which includeGoldman Sachs Group Inc. and JPMorgan Chase & Co., alreadyregularly act as buyers and sellers in the interest-rate swapmarket and would be willing traders on new platforms.

Javelin Chief Executive Officer James Cawley said in an e-mailthat the agency's certification will open up the market “to greatertransparency, competition, and certainty.”

Buyers and sellers of derivatives have debated which types oftrades must occur on the platforms since the first filings weresubmitted in mid-October. For example, Sunil Hirani, CEO of trueEX,joined executives of BlackRock Inc., Citadel LLC, and FidelityInvestments in a meeting with CFTC officials in November to discussthe mandate, according to agency records.

Javelin narrowed its plans after swap buyers said the originalversion would cause too many types of trades to occur on theplatforms. The revised version would require interest-ratetrades—including U.S. dollar-denominated transactions lasting 2, 3,5, 7, 10, 12, 15, 20, and 30 years—to transact on the Sefs. Javelinfiled another revision yesterday that removes transactions calledswap spreads, a type of interest-rate swap traded with U.S.Treasury bills, from the mandate.

The agency has also received proposals to make interest-rate andcredit swaps available to trade on platforms owned by MarketAxessHoldings Inc., Tradeweb Markets LLC, and Bloomberg LP, parent of Bloomberg News.

The CFTC is debating whether packaged trades that consist of twoor more swaps should be subject to the mandate, one of the peoplesaid. The Securities Industry and Financial Markets Association andInternational Swaps and Derivatives Association, two of thefinancial industry's largest lobbying groups, asked the agency inNovember to exempt the packaged trades.

Hirani said in a telephone interview that the industry currentlylacks the infrastructure needed to have packaged trades fall underthe requirement. The Managed Funds Association, a lobbying groupfor hedge funds, estimated in November that packaged tradesrepresented a quarter of interest-rate transactions on platformslast year.

Scott O'Malia, a Republican commissioner at the CFTC, hasscheduled an agency advisory committee meeting on Jan. 21 in partto oversee the trading decisions and gather feedback from theindustry.

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