This impact of ‘made available to trade’ (MAT) is unclear, but experts fear it could alter how the buy-side engages with SEFs. Essentially, the MAT rule stipulates that market participants must use SEFs to trade an OTC derivative instrument once it is offered across any SEF, as opposed to trading it bilaterally. This rule, designed the by Commodity Futures Trading Commission (CFTC) to encourage SEF usage and volumes, was initially widely criticised by the industry.
Two SEF operators – Javelin and trueEx – have submitted rival MAT filings. One, from trueEx, seeks to keep the ecosystem of instruments small, and concentrated in highly liquid swaps with a view to extending this with industry support in the future. In Javelin’s proposal, a wider range of instruments would be offered to hasten the transition to SEF-based swaps trading – even somewhat exotic, less-liquid instruments.
It is widely anticipated that traditional, bilateral OTC derivatives trading will continue to attract healthy volumes, as many instruments simply aren’t suited to an order book model, due to being bespoke instruments created by banks to fulfill specific needs for specific participants. However, the initial volumes apparent on SEFs since trading began on 2 October shows the market has a willingness to engage as regulators hoped on these platforms to trade instruments vital to the risk management needs of the market.
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