Trade Mandate Delayed for Some Rate Swaps

Financial firms get three more months to start trading swaps with multiple components on swap-execution facilities.

U.S. banks and other financial firms won a three-month delay for as much as half of the interest-rate swap market to meet a federal requirement to trade on platforms meant to boost competition and transparency.

Trades consisting of multiple components won’t need to be transacted on swap-execution facilities, or Sefs, until May 15, the Commodity Futures Trading Commission said in a letter released Monday. The agency said it hadn’t ruled out further extending the new deadline in the Dodd-Frank Act requirement originally set to start Feb. 15.

The delay, which estimates have shown will affect a quarter to a half of the interest-rate swaps market, “allows us more time to figure out what to do” with the packaged trades, Mark Wetjen, the CFTC’s acting chairman, said at a meeting in Washington.

“It certainly doesn’t foreclose additional action,” he said. “we have some flexibility with that date.”

The CFTC’s division of market oversight will discuss how to regulate package transactions at a meeting tomorrow. The agency defines package transactions as including two or more components that are executed simultaneously. At least one of the components must be included in the government requirement to trade on a Sef. Packages could include other swaps or securities, such as government debt.

The delay comes days before the start of a government mandate to require many types of interest-rate and credit- default trades to occur on the facilities. Dodd-Frank, the 2010 overhaul of U.S. financial regulation, sought to have most swaps traded on Sefs or other exchanges to increase price competition and transparency in the market after credit-default swaps helped fuel the 2008 credit crisis.

Banks, trading platforms and asset managers have told the CFTC that the industry lacks the infrastructure necessary to have packaged trades occur by this week on the new platforms. The industry is not yet able to assess the risk of the packages as one unit, Sunil Hirani, chief executive officer of trueEX LLC trading platform, said in an e-mail.

“There is some additional infrastructure that needs to be built out,” Hirani said. “This no-action allows for that much-needed relief.”

Platforms owned by trueEX, Tradeweb Markets LLC, ICAP Plc, MarketAxess Holdings Inc., GFI Group Inc. and Bloomberg LP, parent of Bloomberg News, have temporarily registered with the CFTC. The Sefs facilitate transactions among banks and also between banks and asset managers or other clients.


Notional Volume

The Managed Funds Association, a lobbying group for hedge funds, estimated in November that packaged trades represented a quarter of interest-rate transactions on platforms last year. The CFTC’s economist office estimated that packaged transactions comprise 50 percent of the notional volume of the interest-rates market, according to a Jan. 16 statement by Scott O’Malia, a Republican commissioner.

“It’s a sizable chunk of this market that’s getting a three-month delay,” Marcus Stanley, policy director of Americans for Financial Reform, a group including the AFL-CIO labor federation, said in a telephone interview. “There is this pattern that whenever you approach a deadline there is a special exception or delay and you push it back further.”


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