The SEF-Book

- All you need to know about the changing regulatory landscape

For more information, please visit: www.terrapinn.com/SEF
Contents
This eBook will tell you everything you need to know about the changing
regulatory structure around SEFs.
What is a SEF?
Market Impacts
Technological changes
Meet the SEFs
What is the SEF?
A Swap Execution Facility (SEF) by definition, is 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.
These are open to multiple participants in the facility or system, through any means of interstate commerce
therefore allowing increased transparency and provides the tools for a complete trade audit.
A swap execution facility allows for greater transparency and is a significant shift in the way derivative trading is
made.
What are the Impacts on
Derivative Trading?
SEFs were created with the hope that pre- and post-trade transparency will improve, greater competition will be
fostered and documentation of trades will be improved.
This inevitably will lead to a fully transparent market where all OTC derivative trades will be visible and
displayed on a screen for everyone to see.
Okay.. So what?
Formerly, firms are accustomed to trading bilaterally: meaning a buy-side firm would typically trade derivatives
directly with its dealer counterparty.
The terms of the swap agreements were all negotiated by both parties involved.
Now with the implementation of SEF and desire for greater transparency, all trades will now have to go through
a clearing process, where all information is reported to regulators who will cover the entire swap market (The
CFTC and SEC)
Almost all OTC products will now be regulated by one or both of these regulators, known as the central clearing
counterparty. (CCP)
How will this work?
As mentioned, multiple regulators will be covering the swap market.
However, in some cases two different regulators may have jurisdiction over the same swap.
Security-based swaps, such as a credit default swap on debt of an individual company, would fall under the SEC,
whereas a total return swap on a broad market index would be regulated by the CFTC. Both may have to jointly
regulate a swap in some case. For example, a total return swap on single security with an embedded foreign
currency hedge would be jointly regulated.
Already burdened with the need to continuously report on the transactions, firms will face an increased reporting
burden for jointly regulated products.
Flexibility in the SEF
The SEF rulemakings offer flexibility to allow participants to use a variety of trading systems and platforms,
including order books and request for quote (RFQ) systems.
Quote models include:
o Platforms in which a market participant transmits a request for a quote to buy or sell to no less than five
market participants.
o Platforms in which multiple market participants can view and act upon real-time electronic streaming
quotes from multiple potential counterpart and on a centralized electronic screen
Complexity in the work flow
As opposed to the previous work flow, the new work flow is much more complex due to all the rule changes and
clearing requirements.
Technological changes
With the SEF landscape rapidly changing, so to is the need for technology in order to keep up with the process:
specifically in order to comply with the new regulations in clearing.
In order to ensure that trades agreed to on a SEF can indeed be accepted for clearing, several solutions have been
proposed and created. Such credit hubs that can be queried as a trade occurs (the ping model), credit limit lists
that can be sent out from futures commission merchants (the push model), or direct credit checks with
individual dealers (the pull model).
There is not consensus yet on which model will ultimately make the most sense, so we are supporting all
three, - Rick McVey, CEO of MarketAxess, which operates one of the 23 approved SEFs.
When will all these rules be in
effect?
The SEF rules have become effective on August 5, 2013. Prospective SEFs were given the opportunity to apply
for registration before that date in order to gain temporary registration.
With 25 total SEFs: about 23 currently registered and 2 pending, the date when SEF trading has become
mandatory for certain swaps was effective on February, 2014.
Meeting the SEFs
360 Trading Networks. Inc.
360 Trading Network Inc., registered as Delaware
limited liability company, is a wholly-owned subsidiary
of 360 Treasury Systems AG, headquartered in
Frankfurt, Germany.
It is the leading independent global provider of a multi-
bank, multi-asset trading platform, which is regulated by
the German Federal Financial Supervisory Authority
Its fast growth confirms the companys status as a
provider of web-based trading technology for over-the-
counter (OTC) instruments, integration solutions and
related services
BGC Derivatives Markets, L.P.
A leading financial services firm.
Now focused on institutional financial services.
On October 2, 2013 BGCs subsidiary BGC Derivative
Markets, L.P. launched operations as a Swap Execution
Facility (SEF), consistent with the derivatives trading
regulations under the Dodd-Frank Act.
BGC offers trading in swaps products subject to
mandatory clearing, as well as swaps classified as
permitted transactions.
Bloomberg SEF LLC
By building upon the core technology of Bloombergs
existing derivative trading platforms used by more than
1,000 global institutions Bloombergs SEF will provide
all Bloomberg Professional service subscribers access to
multiple execution styles and liquidity across numerous
asset classes including rates, credit, currency and
commodity derivatives
Chicago Mercantile Exchange, Inc.
CME is an American financial and
commodity derivative exchange based
in Chicago
Also known as The Merc, it trades several
types of financial instruments: interest
rates, equities, currencies, and commodities.
It also offers trading in alternative investments,
such as weather and real estate derivatives, and
has the largest options and futures contracts open
interest (number of contracts outstanding) of any
futures exchange in the world.
EOX Exchange LLC
EOX Holdings LLC is a futures broker registered with
the Commodity Futures Trading Commission (CFTC)
and is a Member of National Futures Association
(NFA)
EOX also offers market data services and introducing
broker (IB) services
DW SEF LLC
DW SEF is the Swap Execution Facility of Tradeweb
Markets LLC
Tradeweb provides a range of market data and post-
trade processing services
It also offers specialist execution services across a
number of key finance markets including U.S.
Treasuries, fixed income, derivatives and the money
market
Clear Markets North Market, inc
The U.S. Commodity Futures Trading Commission
(CFTC) recently approved the application of Clear
Markets North America, Inc. (CMSEF) for temporary
registration as a swap execution facility (SEF).
This application went through on May of 2014.
GFI Swaps Exchange LLC
GFI is a leading marketplace for over-the-counter (OTC)
derivatives.
It received temporary registration approval from the
Commodity Futures Trading Commission (CFTC) to
become a multi-asset swap execution facility (SEF) under
the CFTC's SEF rules issued pursuant to the Dodd-Frank
Act
GFIs SEF operates markets for both required and permitted
transactions via GFI's award-winning venues for
trading derivatives in:
o Credit
o Interest Rates
o FX
o Equities
o Energy and Commodities
GTX SEF LLC
GTX offers a pool of forex liquidity from anonymous
and disclosed liquidity providers via an extensive
network of wholesale forex trading partners
GTX is a Swap Execution Facility owned and operated
by GAIN Capital, a global provider of online trading
services and solutions.
ICAP Global Derivatives Limited
ICAP provides a wide range of electronic execution, broking, risk
mitigation, messaging, and information services to wholesale market
participants.
The company has served OTC and exchange traded
derivatives customers for many years by offering fair, liquid and
robust markets
ICAP SEF
The Swap Exchange Facility of ICAP
Derivatives.
The regulatory framework that has been created
in the US by the Dodd-Frank Act provides ICAP
with the opportunity to leverage their expertise in
operating these markets and expand their
services to create a SEF surrounded by a broad
set of asset classes and currencies.
ICE Swap Trade LLC
ICE Swap Trade is a Delaware limited liability
company and is a wholly-owned subsidiary of
IntercontinentalExchange, Inc., a Delaware
corporation.
ICE serves customers around the world by
building the markets and tools
required to manage risk in a dynamic economic
and regulatory environment.
INFX SEF
INFX SEF is a fully-owned subsidiary of Integral
Development Corp.
ISEF (Integral's swap execution facility) allows
customers to trade FX NDFs on a multiple-to-
multiple platform, enabling customers to source
liquidity from bank providers as well as resting
orders from other market participants.
Javelin SEF
The Swap Execution Facility of Javelin Capital
Markets LLC.
Javelin offers low cost, real time trade execution
for Interest Rate Swaps
LatAm SEF
LatAm SEF is a U.S.-based multi-asset marketplace for
swaps.
It is currently operating under Temporary Registration as a
Swap Execution Facility as granted by the CFTC.
LatAm SEF provides a U.S. regulations-compliant trade
workflow, addressing regulatory requirements at pre-trade,
execution, and post-trade stages of the trade lifecycle.
MarketAxess SEF
Specializes in e-trading
MarketAxess is one of the most liquid U.S credit
markets.
After being granted temporary registration approval
from the CFTC, MarketAxess has been operating as
a SEF since October 2, 2013. As a pioneer in credit
e-trading, MarketAxess has enhanced its CDS
functionality to enable credit market participants to
trade both Permitted Transactions and, from
February 26, 2014, Required Transactions, for U.S.
indices (CDX), European indices (iTraxx), and CDS
options while meeting the CFTCs SEF
requirements. MarketAxess' CDS Platform also
supports trading of CDS single-names using a broad
range of trading protocols.
SDX Trading LLC
SDX is the Swap Execution Facility of
SuperDerivatives.
For over a decade SuperDerivatives has been providing
OTC derivatives market participants with the
technology and expertise to improve transparency and
set best practice in their trading and hedging operations
Working closely with regulators, SDX Trading will
provide its customers with a fully compliant electronic
execution platform for a wide range of swaps products
and asset classes, starting with FX and commodities.
SwapEx LLC
SwapEx is the Swap Execution Facility of State Street
Corporation (NYSE: STT), one of the worlds leading
providers of financial services to institutional investors.
SwapEx provides the first step in a global end-to-end
solution that reduces operational risk through the
automation of the many stages of derivatives processing,
including execution, clearing, collateral management,
cash and securities flows between the middle and back
offices, transaction cost and risk reporting, valuations,
and the reconciliation of positions.
TeraExhange LLC
TeraExchange is the industry's first and only multi-asset
class central limit order book with an all-to-all platform
across interest rate, credit and foreign exchange (FX)
derivatives for all clearable swaps contracts.
It also incorporates "Directed Orders" within the order
book, request-for-quote (RFQ) and request-for-market
(RFM) trading protocols.
Thomson Reuters (SEF)
The Thomson Reuters Swap Execution Facility (SEF)
allows customers to trade FX non-deliverable forwards
(NDFs) and FX options electronically through
multibank request-for-stream (RFS) liquidity and an
anonymous Order Book.
tpSEF Inc
tpSEF filed an application in September 2013 to
be registered as a Swap Execution Facility.
tpSEF will provide execution services for swap
transactions, including interest rate swaps, credit
swaps, foreign exchange swaps, commodity
swaps and equity swaps.
Tradition SEF, Inc
TraditionSEF is operated by Tradition, one of the
world's largest interdealer brokers in over-the-
counter financial and commodity related
products.
TraditionSEF will operate markets for Interest
Rates Swaps, Credit Swaps, Equity Derivatives,
Commodity Derivatives, Foreign Exchange
options and NDFs, in cleared and uncleared
swaps as markets determine.
trueEX LLC
trueEX is an electronic, CFTC-regulated, exchange for
interest rate swaps.
trueEX offers market participants the dual benefits of
automated execution and clearing in an electronic,
CFTC-regulated, DCM (Designated Contract Market)
exchange.
TW SEF LLC
A Swap Exchange Facility of Tradeweb.
The TW SEF provides market participants with the
greatest flexibility to trade interest rate swaps and credit
default swap indices in a disclosed, request-based
market with an order book - a single integrated platform
with tools to help ensure compliant trading and seamless
connections to clearing houses, SDRs, middleware
vendors, and order management systems.
Who can provide for these SEFs?
There are many providers that offer pre and post - trade services for buyside and sellside firms in order to
comply with the new regulations yet also optimize workflow efficiency.
A few of these providers include:
o Traiana - support trading platforms, global banks, broker/dealers and buyside firms
o Markit provide processing solutions for cross-asset class OTC derivatives
o Omgeo post trade efficiency and solutions
October 8 New York City Tribeca 360
Some featured speakers include:
Daniel Conte, CEO & COO, 360 Trading
Networks
Michael Koegler, Managing Director, Javelin
Capital Markets
Scott Fitzpatrick, CEO, Tradition SEF
Some featured topics include:
How to ensure data security is sufficient to
support and protect operating SEFs
How can we measure and understand if
firms' technology infrastructure produce the
results needed to satisfy new data reporting
requirements
How to ensure pre-trade certainty of clearing
Can regulators collect, manage, and
understand this data to gain consistent
oversight of the global over-the-counter
(OTC) derivatives sector?
For more information, please visit: www.terrapinn.com/SEF
October 8
th
New York City Tribeca
360
In addition to the SEF community, The Trading Show New York brings together HFTs, Prop Firms,
Hedge/Quant Funds, Brokers, Banks and leading providers servicing these profiles.
A few of our high profile speakers will include:
Brian Peller, Chief Operating Officer, Market Making, KCG
Keyvan Azami, Director, Head of Electronic Trading and Algorithmic
Technology, Barclays Capital
Michael Azzopardi, IT, Infrastructure Architecture & Strategy, Credit Suisse
Group AG
Mike Beller, Chief Technology Officer, Tradeworx
Sanjay Sharma, Chief Risk Officer, Global Arbitrage and Trading, RBC
Capital Markets
For more information, please visit: www.terrapinn.com/SEF
Post-SEF Effects
So what does all this mean? How has the Dodd-Frank Act and CFTC
regulations impacted the way these SEFs operate?
Come find out everything you need to know at SEF New York on October
8
th
!
For more information please contact Steven Reichard on
+ 1 (646) 619 1777 or email steven.reichard@terrapinn.com
Part of:
For more information, please visit: www.terrapinn.com/SEF