Mandatory SEF for IRS- Major notch on the D-F bedpost

The CFTC yesterday announced that it has certified Javelin SEF’s Made Available to Trade Submission (“MAT” Submission) for USD and EUR interest rate swaps.  This is an important milestone for the $400trn swaps market, as it triggers mandatory trading on SEF’s. The MAT certification begins a 30-day countdown, after which the certified swaps must be exchange or SEF-traded (effective 15^th February 2014). Javelin SEF has certified USD and EUR T+2 benchmark IR swaps with the following tenors: 2 year, 3 year, 5 year, 7 year, 10 year, 12 year, 15 year, 20 year and 30 year. The agency has also accepted the certification of USD IMM forward start swaps for the same maturities. The CFTC has clarified that individual legs of “package transactions” will not be exempt from this obligation, although it will be considering limited relief based on forthcoming public consultation.

SEF’s were officially launched on 2^nd October 2013, liquidity has quickly devolved to a handful of major market players and niche specialists. In the case of vanilla IRS, the market is dominated by tpSEF (Tullett Prebon), ICAP and Tradition. While yesterday’s achievement by Javelin is unlikely to change this landscape, it does mark the end of the “phony war”, instituting the full legal effect of the CFTC’s SEF regulations.