The U.S. Commodity Futures Trading Commission, charged with promoting fairness on the new public markets for swaps mandated by the Dodd Frank Act, is telling three operators they must change their access rules.
Swap execution facilities run by Tradeweb Markets LLC, MarketAxess Holdings Inc. and Bloomberg News parent Bloomberg LP are giving banks too much control over who their customers buy and sell with, CFTC Chairman Gary Gensler said today. The platforms began in October and have been incorporating CFTC regulatory guidance for the past two months.
“What they are doing right now is a violation of Dodd- Frank and our rules,” he said at an event in New York. “They need to come into compliance,” he said. The limits at Tradeweb, MarketAxess and Bloomberg LP give an advantage to the dealers who created the swaps market in the 1980s, Gensler said. “They’re trying to keep exclusive to the dealers.”
Spurring competition in a market that worsened the 2008 credit crisis was a tenet of the 2010 law, which required that swaps move to transparent venues such as SEFs from largely unregulated trading that occurred off exchanges. The CFTC completed rules governing the transactions in May. Previously, only dealers could trade swaps, meaning a more than $400 trillion market is being opened to transparency.
Tradeweb, MarketAxess and Bloomberg LP have traditionally offered trading between dealer banks and their customers such as asset managers and hedge funds. Allowing customers to trade only with pre-approved counterparts is how the dealer-to-client market developed, said Richard McVey, chief executive officer of New York-based MarketAxess.
Open Access
“We will comply with rules to provide impartial access this week,” he said during an interview.
In September, the CFTC told SEF owners that they must ensure all types of buyers and sellers can participate to avoid violating the spirit of open access at the heart of the Dodd- Frank Act. The regulator didn’t identify any companies with potentially objectionable arrangements by name.
Last week, the commission issued guidance to market users detailing the prohibition against blocking trading partners, known as enablement mechanisms. Gensler said today in a speech that blocking all-to-all access to swaps trading is “inconsistent” with CFTC rules.
The ongoing issuance of guidance and temporary postponements of rules by the CFTC is being assessed by Tradeweb, Clayton McGratty, a Tradeweb spokesman, said in an e- mailed statement. Tradeweb is majority owned by Thomson Reuters Corp., which competes with Bloomberg LP in financial news and data.
Talks Continue
“As always, we will continue to dialogue with the CFTC about any need for further clarification, and will inform our market participants of any necessary changes to our SEFs, if any,” he said.
“In light of the clarification provided by the CFTC in Friday evening’s no-action letter, we are reviewing our systems to ensure we remain in full compliance,” Ben Macdonald, the president of Bloomberg SEF LLC, said in an e-mailed statement.
The CFTC continues to update its interpretation of what its rules mean, and SEFs are having to react quickly, MarketAxess’s McVey said. One example is the practice of allowing bank customers to trade only with pre-approved partners, known as permissioning, he said. The platforms started opening on Oct. 2.
Until last week, “most dealers were strongly of the view they could continue with permissioning of their customers,” he said.