Swap Execution Facility
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A Swap Execution Facility (SEF) (sometimes Swaps Execution Facility) is a
platform Platform may refer to: Technology * Computing platform, a framework on which applications may be run * Platform game, a genre of video games * Car platform, a set of components shared by several vehicle models * Weapons platform, a system or ...
for financial
swap Swap or SWAP may refer to: Finance * Swap (finance), a derivative in which two parties agree to exchange one stream of cash flows against another * Barter Science and technology * Swap (computer programming), exchanging two variables in t ...
trading that provides pre-trade information (i.e. bid and offer prices) and a mechanism for executing swap transactions among eligible participants. Swap Execution Facilities are regulated by the Securities and Exchange Commission and the Commodity Futures Trading Commission. The regulated trading of certain swaps is a result of requirements in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
by the
Dodd–Frank Wall Street Reform and Consumer Protection Act The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the Great Recess ...
(in particular
Title VII The Civil Rights Act of 1964 () is a landmark civil rights and labor law in the United States that outlaws discrimination based on race, color, religion, sex, and national origin. It prohibits unequal application of voter registration requi ...
). Financial swaps have traditionally been traded in
over-the-counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescr ...
(OTC) markets. However, regulatory changes have driven reporting, clearing, and settlement functions to SEFs, which are much more tightly regulated. The SEF-execution mandate responds to one of the four derivatives-related
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
, have proposed similar changes in swap market structure but none have yet been adopted. As of October 2, 2013, any swap listed by a SEF ''may'' be traded by the parties on the SEF, but may also be traded off-SEF in any other lawful manner. The swaps that must be traded on SEFs are both subject to a CFTC-centralized clearing mandate and have been determined to be "made available to trade" (MAT) by at least one SEF. Four categories of
interest rate swaps In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations wit ...
and two categories of
credit default swaps A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. That is, the seller of the CDS insures the buyer against so ...
are currently subject to clearing mandates.


Regulation

* The Securities and Exchange Commission (SEC) is responsible for regulating dealing and trading in security-based swaps, such as many equity swaps and credit default swaps. Proposed rules for security-based Swap Execution Facilities (SB-SEFs) have been pending since 2011. * The Commodity Futures Trading Commission (CFTC) is responsible for regulating the dealing and trading of a much wider range of over-the-counter derivatives, including interest-rate swaps, commodity-linked swaps and certain FX, credit default swaps, and equity swaps. CFTC Commissioner
Bart Chilton Bartholomew Hamilton Chilton (May 1, 1960 – April 27, 2019) was an American civil servant. He was Commissioner at the Commodity Futures Trading Commission (CFTC) from 2007 to 2014. In April 2014, he joined DLA Piper as a Senior Policy Advis ...
suggested that the primary benefits will be greater transparency, improved price formation, and better regulatory compliance. The CFTC's final SEF rules went into effect in August 2013 and the first SEFs began operating in October 2013. Previously operating swap trading platforms with multiple-to-multiple trading capability within the regulatory definition of "swap execution facility" could no longer operate legally without registering with the CFTC. The SEF launch on October 2, 2013, was facilitated by a CFTC guidance letter and several conditional and time-limited grants of relief from enforcement against non-compliance with certain technical elements. However, the CFTC in its no-action letters did not grant relief for SEFs from the October 2, 2013 deadline requiring swap trading venues to register. The CFTC regulations further require SEF's to report certain data arising from the execution of a swap to a swap data repository either for real-time public dissemination or confidential regulatory use. Regulations require that if a swap is executed on a SEF, the SEF must provide written confirmation of the terms to each
counterparty A counterparty (sometimes contraparty) is a legal entity, unincorporated entity, or collection of entities to which an exposure of financial risk may exist. The word became widely used in the 1980s, particularly at the time of the Basel I deliberat ...
. After the CFTC certified Javelin Capital Markets SEF's Made Available to Trade (MAT) Submission on January 16, 2014, certain swaps were required to trade on SEFs as of February 15, 2014.


Entities in the swaps industry


Established entities

*
TrueEX Group trueEX Group LLC, known as trueEX, is a New York City, New York based financial technology company established on October 21, 2010, by Founder Sunil Hirani, Sunil G. Hirani, a Co-Founder of Creditex Group Inc. and his Co-founder, Jim Miller. Its h ...
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*
ICAP (company) NEX Group plc, formerly known as ICAP plc, is a UK-based business focused on electronic financial markets and post trade business for other financial institutions rather than private individuals. They are known as an inter-broker dealer. Th ...
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* 360 Trading Network

* Bloomberg L.P.

*
BGC Partners BGC Partners is an American global financial services company based in New York City and London. Originally formed as part of the larger Cantor Fitzgerald organization, BGC Partners became its own entity in 2004. History 1945–1990 In 1945, ...
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* CME Groupbr>
* LCH.Clearnetbr>
* Eris Exchang

*
Eurex Eurex Exchange is an international exchange which primarily offers trading in European based derivatives. It is the largest European futures and options market. The products traded on this exchange vary from German and Swiss debt instruments to E ...
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* FX Alliance Inc. (FXall) (NYSE: FX

engaged with
National Futures Association The National Futures Association (NFA) is the self-regulatory organization (SRO) for the U.S. derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency (forex) and OTC derivatives ( swaps). NFA is headqua ...
to perform regulatory services *
GFI Group GFI Group Inc. (GFI) through its subsidiaries provides brokerage services, trade execution, market data, trading platforms and other software products. Clients are institutional customers in markets for a range of fixed income, financial, equity a ...
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engaged with
National Futures Association The National Futures Association (NFA) is the self-regulatory organization (SRO) for the U.S. derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency (forex) and OTC derivatives ( swaps). NFA is headqua ...
to perform regulatory services * GTX SE

* ICE
Intercontinental Exchange Intercontinental Exchange, Inc. (ICE) is an American company formed in 2000 that operates global financial exchanges and clearing houses and provides mortgage technology, data and listing services. Listed on the Fortune 500, S&P 500, and Russe ...
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Credite

* IDC International Derivatives Clearinghous

* Javelin Capital Market

* LatAm SE

* MarketAxess Holding

engaged with
National Futures Association The National Futures Association (NFA) is the self-regulatory organization (SRO) for the U.S. derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency (forex) and OTC derivatives ( swaps). NFA is headqua ...
to perform regulatory services * Nodal Exchang

* Clear Market

* Parity Energ

* SwapEx
State Street Corporation State Street Corporation is an American financial services and bank holding company headquartered at One Lincoln Street in Boston with operations worldwide. It is the second-oldest continually operating United States bank; its predecessor, Un ...
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* TeraExchang

*
Thomson Reuters Thomson Reuters Corporation ( ) is a Canadian multinational media conglomerate. The company was founded in Toronto, Ontario, Canada, where it is headquartered at the Bay Adelaide Centre. Thomson Reuters was created by the Thomson Corpora ...
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*
Tradeweb Tradeweb Markets Inc. (Tradeweb) is an international financial services company that builds and operates electronic over-the-counter (OTC) marketplaces for trading fixed income products, ETFs, and derivatives. The company was co-founded in ...
Tradeweb Tradeweb Markets Inc. (Tradeweb) is an international financial services company that builds and operates electronic over-the-counter (OTC) marketplaces for trading fixed income products, ETFs, and derivatives. The company was co-founded in ...
Thomson Financial Thomson Financial was an arm of the Thomson Corporation, an information provider. When the Thomson Corporation merged with Reuters to form Thomson Reuters in April 2008, Thomson Financial was merged with the business of Reuters to form the Market ...
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* Traditio

* Trumar

*
Tullett Prebon TP ICAP Group plc is a financial services firm headquartered in London, United Kingdom. Its stock is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index. History The company was founded by Derek Tullett in 1971 as ...
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* SuperDerivativesbr>
Many of the foregoing entities, directly or through affiliates, have pending or temporarily approved SEF registrations with the CFTC. SEFs with temporary registrations may operate for up to two years while the CFTC completes a full review of the SEF's application on Form SEF.


Emerging entities

''Note: above established entities section is for firms that had significant swaps business ahead of the sweeping regulatory reform. The following list is oriented to newer entrants (emerging after the Dodd-Frank Act), representing less established participants. As such this section will necessarily be more illustrative than fully up to date, and likely somewhat transitory.'' * Broadway Technolog

* Cleartrade Exchang

* ClearingandSettlement.co

* DerivaTrus

* eDeri

* First Derivative

http://www.firstderivatives.com/downloads/RNS_James_Sanders_Appointment_15.03.13.pdf] * Integral Development Corp

http://www.integral.com/about_integral/news_and_events/press_releases/2013_may_17.htm] * trueEX LL

* AEGIS SEF

https://aegis-hedging.com/news/cftc-approves-aegis-swap-execution-facility/]


See also

*
Central counterparty clearing A central clearing counterparty (CCP), also referred to as a central counterparty, is a financial institution that takes on counterparty credit risk between parties to a transaction and provides clearing and settlement services for trades in fore ...
*
Clearing house (finance) A clearing house is a financial institution formed to facilitate the exchange (i.e., '' clearance'') of payments, securities, or derivatives transactions. The clearing house stands between two clearing firms (also known as member firms or partici ...
* Swap (finance) *
International Swaps and Derivatives Association International is an adjective (also used as a noun) meaning "between nations". International may also refer to: Music Albums * ''International'' (Kevin Michael album), 2011 * ''International'' (New Order album), 2002 * ''International'' (The T ...
* Credit derivatives *
Credit default swap A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. That is, the seller of the CDS insures the buyer against som ...
*
Currency swap In finance, a currency swap (more typically termed a cross-currency swap, XCS) is an interest rate derivative (IRD). In particular it is a linear IRD, and one of the most liquid benchmark products spanning multiple currencies simultaneously. I ...
*
Forex swap In finance, a foreign exchange swap, forex swap, or FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward) and may use foreign exchange derivatives. ...
*
Interest rate swap In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with ...
*
Energy derivative An energy derivative is a derivative contract based on (derived from) an underlying energy asset, such as natural gas, crude oil, or electricity. Energy derivatives are exotic derivatives and include exchange-traded contracts such as futures an ...
*
Multilateral trading facility A multilateral trading facility (MTF) is a European Union regulatory term for a self-regulated financial trading venue. These are alternatives to the traditional stock exchanges where a market is made in securities, typically using electronic ...


References

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External links


Understanding Derivatives: Markets and Infrastructure - Chapter 3, Over-the-Counter (OTC) Derivatives Federal Reserve Bank of Chicago, Financial Markets GroupISDA - International Swaps and Derivatives Association, Inc.Sample ISDA Master AgreementsSample ISDA Credit Derivatives TemplateRole of Swap Execution Facilities (SEFs) in Derivatives Trade Execution, Clearing and Reporting
Self-regulatory organizations Derivatives (finance) Securities clearing and depository institutions Swaps (finance)