Trade Execution Rules Under Scrutiny - Integral Set to Launch SEF Compliant Solution Following CFTC Meeting

The US Commodity Futures Trading Commission (CFTC) held a public meeting yesterday at 10:00 am to consider procedures to establish appropriate minimum block sizes for large notional off-facility Swaps and block trades, referred to by the CFTC as the Swaps Block Rule.

More importantly, the meeting focused on discussion relating to the implementation of the CFTC’s proposed process for a designated contract market or swap Execution facility (SEF) to make a swap available to trade under section 2(h)(8) of the Commodity Exchange Act (CEA).

Integral Quick off the Blocks

Quick to align itself following the outcome of yesterday's public meeting is FX trading solutions provider Integral Development Corporation, which has announced that it is ready to provide its customers with a Swap Execution Facility (SEF) in time to meet stated deadlines set by the CFTC as a direct result of the decision during the meeting by the CFTC on ‘Final Rulemaking Regarding Core Principles and Other Requirements for SEFs.'

In a statement issued by Integral Development Corporation, the company's CEO Harpal Sandhu stated: “We have been working diligently in anticipation of this milestone and will continue on this path now that the final rulemaking has occurred,”

“Our customers can continue to focus on building their businesses in the knowledge that we as their service provider will be ready with a regulatory compliant solution" explains Mr Sandhu.

As every other capability offered through FX Grid, the SEF will be provided as a cloud service. FX Grid is Integral’s global inter-institutional connectivity and trading network, linking market making banks to FX market participants. Immediately, FX Inside Professional™, Integral’s private FX trading system for spot, outrights, and swaps will also include Non-Deliverable Forwards (NDFs). Other instruments stand to follow as the regulatory framework is being finalized. Integral’s SEF will be branded INFX SEF and will be a wholly-owned subsidiary of Integral Development Corporation.

Integral envisions for its customers to enjoy a seamless user experience for both regulated and unregulated instruments.

“Contrary to how it is sometimes portrayed in public, SEFs are not about the displacement of broker/dealers,” added Mr Sandhu. “We foresee a better, fairer market place, and we are working jointly with many broker/dealers to deliver that to our and their customers. I encourage everyone to talk to their dealer or to us to find out how to take advantage of this upcoming change.”

CFTC Engaged in Discussion on Trade Execution Requirements

During the meeting, other items on the agenda included the swap transaction compliance and implementation schedule, trade execution requirement under Section 2(h) of the CEA (Made Available to Trade Rule). Points discussed during this part of the meeting were centered on the core principles and other requirements for SEFs, along with the interpretive guidance and policy statement from the Anti-disruptive Practices Authority.

Such proposed rulings are congruent with the ongoing Dodd-Frank law, which instigated the SEF as a means of reforming the OTC derivatives market without forcing participants onto an exchange. Furthermore, rulings relating to the transaction of large scale trades known as blocks that can be reported with a delay into the broader market may come into being.

The original SEF proposal required customers to submit requests for quotes from at least five others to allow “buyers and sellers to meet and compete in the marketplace, just as they do in the futures and securities marketplaces”, according to a pre-meeting public statement made by Gary Gensler, the CFTC's Chairman.

The final rulemaking implements Section 733 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), which added Section 5h of the Commodity Exchange Act (CEA) governing the registration and operation of swap execution facilities (SEFs).