By John McCrank and Tom Polansek
Sept 18 CME Group Inc, the biggest U.S. futures
market operator, has applied with the Commodity Futures Trading
Commission to register as a swap execution facility (SEF), an
exchange-like platform created as a result of the global
crackdown on the derivatives that helped bring the 2007-2008
Regulators in major financial markets around the world are
rewriting the rules on swaps, the over-the-counter securities
that derive their value from interest rates, credit, foreign
exchange, equities and commodities - estimated to be a $630
Wall Street banks trade swaps in privately negotiated deals,
largely over the phone, through a handful of brokers such as
Britain's ICAP Plc. Regulators want to shed more light
on the lucrative market.
New rules, part of the 2010 U.S. Dodd-Frank law intended to
overhaul Wall Street after the financial crisis, will put an end
to privately negotiated swaps trading.
With the move to SEFs, swaps will be traded on exchange-like
platforms. Deals will take place through the same type of order
books that exchanges use, or by requesting quotes from at least
two market parties. The number will go up to three parties after
a phase-in period.
Chicago-based CME said its SEF would be available
via its CME Direct platform, which provides access to the
exchange operator's futures and over-the-counter markets in
energy and metals.
CME, which owns the Chicago Mercantile Exchange, the Chicago
Board of Trade and the New York Mercantile Exchange, plans to
initially launch the SEF with commodities and is weighing
customer demand for other asset classes. It said an announcement
about specific products would be made at a later date.
The SEF will allow CME customers to execute swaps alongside
listed futures, according to the exchange operator.
Under its previous chief executive, CME had indicated it was
not focused on launching a SEF.
In a July 2010 earnings call, former Chief Executive Officer
Craig Donohue said CME intended to "support market participants
who may be developing swap execution facilities" and that the
company's "primary commitment is really to support our customers
with clearing services," according to a transcript of the call.
Donohue stepped down from CME last year. He was succeeded by
Phupinder Gill, who had been CME's president.
Damon Leavell, a spokesman for the exchange operator, on
Wednesday said that it has "always been a goal" of CME to
provide customers with choices and that some may prefer swaps
"Even in the early days of Dodd-Frank, we always said we
reserved the right to operate a SEF depending on how the market
evolved," he said.
The swaps market is dominated by large banks such as
Citigroup Inc, Bank of America Corp, JPMorgan
Chase & Co and Goldman Sachs Group Inc. Virtually
all trading volume between them takes place through the brokers.
Other firms looking to become SEFs include ICAP, Bloomberg
LP; TradeWeb, which is majority-owned by Thomson Reuters
; and MarketAxess.