March 31, 2011
Good morning and thank you for coming to the SEF Showcase. I would like to thank staff for working so hard to put this meeting together. They did a terrific job. I would also like to thank Commissioner Michael Dunn for his participation.
The SEF Showcase was born out of a meeting with Chris Giancarlo of GFI in early February. He came in to show me how GFI’s platform functioned and how inter-dealer brokers viewed integrating their technology platforms with the new requirements under the Dodd-Frank Act. After seeing his demonstration, I was curious to see how other execution platforms function. It occurred to me that a single meeting bringing as many potential SEF platforms as possible to the Commission would be of great benefit to my office, to the rest of the Commission, and to market participants as well.
Thanks to our technology team, we are also able to share this meeting with our regional offices in Chicago, New York, and Kansas City so they too can develop a better understanding of the range of platforms under development.
I greatly appreciate the strong representation of technology providers as well as the user community at this meeting. It is unprecedented for the Commission to host such a large scale market demonstration, let alone in a single day. I expect this meeting to be extremely valuable for the Commission and the public.
Who is Here and Who is Not.
Today’s meeting consists of two panels.
Panel I features members from asset management funds, pension funds, end-users, swap market observers, dealers, and public interest groups. Our discussion will cover a wide range of topics from execution functionality to making the transition from OTC execution to regulated execution as smooth as possible. I will ask each participant to introduce themselves and then give a brief summary as to what they believe are the most important functions of a swap execution facility and provide any comments they may have related to our rulemaking process.
I am interested to hear from a broad range of market participants about how they will use these execution platforms, how SEFs will interact with clearing platforms – especially early on and during the transition period – and what they believe to be the most important attributes of a SEF.
After hearing from the participants, I will ask them some questions that will begin our open discussion.
Panel II features seventeen different execution platforms that will demonstrate their functionality, discuss our rule proposal, and respond to the comments and concerns raised in Panel I. I will provide each presenter about 13 minutes to make a presentation and demonstrate how their execution platform works.
What’s interesting about Panel II is that the Wall Street dealers are noticeably absent. I have not turned down a single entity that requested to participate in this meeting and yet we don’t have a single dealer platform represented here today, and I can assure you, it’s not for a lack of trying.
Nevertheless, I do believe we have a wide variety of different trading platforms representing a range of asset classes including energy, interest rates, credit, and foreign currency. I am excited to learn more about the innovative and fresh ideas being developed by the market, about how SEFs will be able to comply with our proposed rules, and any changes they may recommend. I am also eager to question our panelists about how they will attract liquidity to their platforms and whether or not they believe the proposed rules will offer a competitive playing field for all market participants.
Vision for the Industry.
With that said, let me talk about what I believe are the necessary attributes of a SEF. First, we must recognize that the swaps market is different from the futures market and has developed in a parallel fashion, and that the statute recognizes these differences. I believe we must allow both traditional RFQ and limit order book execution in order to bring as much liquidity and standardization to this market as possible.
Second, while I believe SEFs must provide greater price transparency, we must also protect the buy-side’s ability to transact sufficient size without penalty. I will not view the Commissions’ efforts as a success if we create a market structure that fractures liquidity and creates an incentive to utilize dark pools, simply because our rules do not provide the flexibility necessary to facilitate on-exchange transactions.
Third, I want to incentivize both buy-side and sell-side market participants to compete for business and provide liquidity on SEFs. I believe its competition among market participants and sufficient liquidity on SEFs that lowers spreads, not unreasonable reporting requirements.
In the end, our goal must be to establish a well functioning swaps market that provides impartial low-cost access to competitive execution facilities that commercial interests can rely on to hedge risk, whether it’s a small farmer or large pension fund, or a multinational corporation or a regional cooperative. We must establish flexible rules to allow for innovation and the evolution of the swaps market over time. This is not the last time we can revisit these rules, and we shouldn’t impose rules on the market that are unworkable or will create barriers to liquidity formation.
I am looking forward to our participant presentations and I greatly appreciate the willingness of all of our participants to travel great distances to present here today.
Last Updated: March 31, 2011