Bloomberg rolls out US swap execution facility
Bloomberg’s new SEF aims to capture a share of the lucrative swaps market
Bloomberg has received approval to launch a Swap Execution Facility, ahead of the compliance deadline for new US Dodd-Frank rules for clearing of OTC derivatives.
Bloomberg’s SEF will support request for quote and order book functions for interest rate swaps, credit default swaps and foreign exchange and commodity derivatives. The SEF will build on Bloomberg’s existing trading infrastructure, with the addition of an order book as required by the regulation.
The Dodd-Frank rules are designed to transfer the bulk of OTC derivatives contracts onto centrally reported and cleared platforms, called SEFs. The measure is intended to reduce systemic risk. By having derivatives cleared at a central counterparty, counterparty risk is minimised, in theory reducing the chance of a catastrophic default such as Lehman Brothers impacting the market as it did in 2008. Clearing also requires collateral and margin to be set aside against the risk of a transaction going wrong.
“The implementation of SEFs is one of the more meaningful ways the Dodd-Frank reforms have sought to increase transparency and standardisation in the swaps market,” said Ben Macdonald, global head of product and president of Bloomberg SEF. “As one of the largest independent swaps trading platforms, operating a SEF for our clients is a logical progression for Bloomberg. While clients can continue to execute on our traditional derivative platforms until the CFTC’s mandatory compliance deadline, receiving approval ensures our readiness to provide them with everything they need to begin SEF trading on October 2nd.”
According to Bloomberg, the dealers planning to participate on its new SEF will be Barclays, BNP Paribas, Bank of America Merrill Lynch, Citigroup, Credit Agricole CIB, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Nomura, RBS, Societe Generale, UBS and Wells Fargo Securities.
Other firms intending to launch their own SEFs include State Street, First Derivatives, MarketAxess and Tradeweb Markets. However, Bloomberg claims to be the first to officially register its application on 4 June 2013.
