New derivatives trading platforms receiving temporary US regulatory approval for launch are likely to improve pricing transparency for traders of interest rate swaps and other credit derivatives, according to Fitch Ratings.
According to the rating agency, designated swaps execution facilities (SEFs) could, over time, begin to generate meaningful revenue streams for firms offering voice and electronic execution of derivative transactions, as required under Dodd-Frank.
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"However, we believe that in the near term, regulatory uncertainty around SEF rules, namely definition of ‘required’ and ‘permitted’ transaction and cross-border treatment, could dampen liquidity, affecting volumes and ultimately revenues," the rating agency said in a statement.
Fitch Ratings added that SEFs will provide an electronic trading platform for counterparties that are required to move all standardized over the counter (OTC) derivative transactions onto centrally cleared platforms.
"We see this as an important step in allowing swap participants to more easily gain access to pricing data. This should ultimately contribute to more efficient interest rate swap and CDS market activity," teh rating agency opined.
As of 25 September 2013, a total of 18 institutions submitted applications to the Commodity Futures Trading Commission (CFTC) to operate SEFs. So far, 13 firms have received temporary registration approval.
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By GlobalDataIncluded among these are BGC Partners and GFI Group. Bloomberg was the first organization to gain temporary approval as an SEF operator in July this year.
