White Paper: The Swap Execution Facility Rule
As part of the Dodd Frank Wall Street Reform Act, one of the key commitments to financial market reform was that standardized OTC derivatives, where appropriate, should be traded on exchanges or electronic trading platforms.
A Swap Execution Facility (SEF) is a platform/trading system that facilitates multi-lateral trading to trade swaps. The Commodity Futures Trading Commission (CFTC) created the SEF rule to outline requirements and standards for SEF’s surrounding execution methods, registration and operating models. This rule was created to ensure mandatory cleared swaps would be executed via SEF’s or Designated Contract Markets (DCM’s).
In addition to these core principles, the Block Trade Rule defines thresholds, cap sizes and which large trades would be disseminated to the public. Lastly, the Made Available to Trade (MAT) rule defines the criteria for determining whether a cleared swap is subject to trading on a SEF*; the general feeling within the market is this will fall within Q1, 2014.