U.S. financial markets “took a step closer…to enhanced transparency,” Commodity Futures Trading Commission Chairman Gary Gensler said Thursday after the Commission voted out final rules covering the vast swap transactions market.
“I think what we did today says swap execution facilities (SEF) can come alive, compete with each other, provide transparency to the markets, and everybody in the marketplace is going to benefit,” Gensler continued, noting the immense size of the swaps market, in which there are “nearly $20 in swaps for every dollar in our economy.” That market was at the center of the 2008 financial meltdown that spurred Congress to enact the Dodd Frank Financial Reform Act.
The swaps rules, setting out the corporate rules and operational requirements for SEFs “are very significant accomplishments for the American public and deliver on what Congress asked for. And I know all five Commissioners have spent, it feels like a lifetime on this particular set of rules.”
Gensler said he was not concerned about the reduction from five to three in the number of market participants to which a request for a quote to buy or sell a specific instrument must be submitted. The chairman had argued that requiring the submission to five entities would enlarge the transparency, but in announcing the modification Thursday he said that while critics seemed focused on it, the modification “was only a small part of the story…I know we seem to be getting bad press over this, but I really think this rule brings the appropriate transparency to the markets.”
As it now stands, “approximately half of the market will benefit from greater post-trade transparency and later, after a transition, two-thirds.” The final rule provides that during a one-year transition period a proposed trade must only be submitted to two trading platforms, to be increased to three after the transition.
Other rules voted out Thursday included the block transaction rule providing for a phase-in of block sizes for credit and interest rate swaps; the anti-disruptive practices rule governing an orderly execution of transactions, and the “made available to trade” rule which requires SEFs and designated contract markets (DCM) to file with the CFTC the contracts they will be offering on their trading platforms.
Completion of the final rules facilitates the congressionally mandated and critical reform for promoting pre-trade transparency in the swaps market. SEF and DCM platforms will allow participants to trade swaps by accepting bids and offers made by multiple participants with all market participants given impartial access, Gensler said.
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