ETF News

CFTC tries to force swap trading into the light

* All market participants able to view quotes in CFTC plan

* SEC to deal with swap execution facility rules in 2011

WASHINGTON, Dec 16 (Reuters) - The chief U.S. derivatives regulator proposed on Thursday that swaps could be traded on venues as transparent as stock markets, a new attempt at rules that establish where big swap transactions could be housed.

One week after Gary Gensler, head of the Commodity Futures Trading Commission, said his staff was “only human” for delaying the long-awaited plan, the agency unveiled a proposal that was largely similar to the original.

Firms such as IntercontinentalExchange Inc ICE.N hope to qualify as a swap trading house as the largely secretive swaps market is forced onto the public stage as part of the Wall Street financial overhaul mandated by the U.S. Congress.

How the CFTC and the Securities and Exchange Commission define these Swap Execution Facilities, or SEFs, will determine who will be in the business of trading and brokering the swap contracts.

The proposal would allow SEFs to have electronic trading systems similar to stock market order books, where bids and offers are continuously updated.

Swap venues also could have a “request for quote” system, as long as the request for a quote to buy or sell a swap was sent to at least five market players in the trading system.

Under the Dodd-Frank overhaul, the CFTC has been given the power to police most of the estimated $600 trillion over-the-counter derivatives market. The SEC is in charge of security-based swaps, which is at most about a tenth of the market. The SEC is expected to offer a similar plan in the new year.

The original CFTC proposal offered three tiers of transactions: larger trades that meet a specific level of volume, smaller trades that are not block trades, but don’t have major volume, and other transactions, such as block trades where a SEF could provide end users the chance to trade even though it’s not required.

Companies that traditionally have been big players in the over-the-counter swaps market are working to ensure they stay in the game as the business moves under the CFTC's regulatory oversight. Barclays BARC.L, Credit Suisse CGSN.VX, Morgan Stanley MS.N and others have met with the agency to discuss the new trading platform. (Reporting by Rachelle Younglai. Editing by Robert MacMillan)