INTERDEALER brokers and investors had been sitting on their hands for months awaiting US swaps watchdog the Commodity Futures Trading Commission to finally publish rules regulating clearable swaps. It was worth the wait – the news is good.
The rules, which recently surfaced after lengthy delays, exceeded expectations. From January 2014 all clearable swaps below a certain level will have to go through something called a swap execution facility (SEF) – platforms that will be owned and registered by interdealer brokers themselves.
Swaps are currently traded through a labyrinth of platforms. With the SEF, this will end. Standardisation will rule. Given the peculiarities of the swap trading market, and the specific nature of the new rules, demand is likely to flow to established City broking houses who have the expertise and know-how to make such systems work.
Analysts expect interbank and single dealer platforms to find it difficult to register as SEFs – leaving brokers like Tullett and Icap with the lionshare of the market. Shares went up yesterday in response, a welcome boost for a beleaguered City sector.
There’s no guarantee of this, of course. Other interdealer brokers could emerge with better platforms, and brokers still face headwinds over regulatory investigations into Libor. But the picture is now clearer, finally removing the lack of clarity that investors hated most about the sector.