In my efforts to understand the implications of the new legislation covering OTC Derivatives, I came across an excellent blog called ‘Streetwise Professor’ written as you would expect, by a streetwise US Professor of Finance and Energy Markets.
In a recent post called
What is a Swap Execution Facility , the ‘prof’ looks at the new ‘Dodd-Frank’ regulations for OTC derivatives. He concludes that in their rush to promote ‘transparency’, congress (and regulators) have created a very narrow ‘one size fits all’ definition
of a Swaps Execution Facility.
This he argues is not in the interests of market participants and in his view will result in the creation of alternative execution mechanisms (similar to how equities markets evolved to create ‘dark pools’ of liquidity) that accommodate the diversity of
requirements of market participants.
Here is the narrow definition of a Swaps Execution Facility:
The Dodd Frank legislation defines a SEF as a “Facility, trading system or platform in which multiple participants have the ability to execute or trade Swaps by accepting bids and offers made by other participants that are open to multiple participants
in the facility or system, through any means of interstate commerce”
More on this in coming blogs.