Swaps market still has impediments to participation, experts say

The original goals of the Dodd-Frank Act have largely been met, although the industry is still working to overcome some barriers to participation, said panelists at FIA Boca 2019 on Wednesday.

The post-crisis progress has created more transparency in trading, greater liquidity, better pricing and increased competition on the trading side, the panelists said.

Amy Hong, head of market structure strategy at Goldman Sachs’ Securities Division, said swaps trading is now being done with greater confidence. “With that said, our markets are dynamic, many of these rules were effected years ago, and now we actually have data as well as anecdotal evidence that will drive the next chapter of swaps reform as we think through ways to perhaps recalibrate as well as improve upon the framework that is currently in place,” she added.

Commodity Futures Trading Commission member Dan Berkovitz said that greater concentration has occurred in the past five to seven years among entities providing key clearing services.

Graham Harper, a partner of Delta Strategy Group, said the CFTC needs to address regulatory reasons for that consolidation, which stem from “a capital standpoint and a barriers-to-interest standpoint.”

Berkovitz said four main impediments are affecting participation in the swaps market. One is the leverage ratio calculation, which the CFTC is asking regulators to revise to avoid discouraging clearing. Another is the 2012 floor trader registration provision for proprietary traders, which contains some conditions that are overly restrictive, he said.

The other two are name give-up in the swaps market, which he said can give an unfair advantage to dealers, and the lack of average pricing among clients trading via swap-execution facilities.

Stephen Berger, managing director of government and regulatory policy at Citadel, said he is “very eager and sympathetic to arrangements being put in place that allow mutual and reciprocal market access between jurisdictions.” He added, however, that “substantive similarity” is necessary and that work toward reform has been slower outside the US and with regard to the dealer-to-customer market.

Gregory Compa, US head of compliance at Tradeweb, said more trading is arriving on SEFs because of factors including improved pricing and the certainty provided by clearing. “Regulation may have been moving people onto platforms, but as soon as they’re there, they tend to like it, and they like the efficiencies and they benefits they’re getting,” he said.