The sentiment toward SEFs has gone fear, to uncertainty, to acceptance, to business opportunity.
I have been trying to learn R, the leading statistical analysis language, but haven't found enough fortitude to put myself through the paces just yet. So you will have to settle for a highly un-scientific but possibly still insightful perspective on how financial services professionals are able to turn the challenges presented by regulatory requirements into opportunities.
Case in point: Swaps Execution Facilities (SEFs). There are 93 references to SEFs in Wall Street & Technology's archives, starting with a piece by Sean Owens in November 2010. Even then, it was clear that the CFTC-driven changes would have a significant impact on the market, with predictions of multiple execution venues and 40+ firms registered as SEFs. Owens' piece is cautiously optimistic on the outcome.
This early sentiment was followed in short course by a number of less-upbeat perspectives:
- Everyone Wants to Start A SEF (November 24, 2010)
- Buy-Side Must Pay to Play in New OTC Derivatives Market (January 13, 2011)
- Trends and the Tornado: Predictions for 2011 (January 18, 2011) [This one has a great lead "A battle of epic proportions over OTC derivatives reform will suck all of the air out of equities."]
- Large Players Worry About Dodd Frank Swap Regs (February 02, 2011)
- OTC Derivatives Coming Under Regulatory Scrutiny (March 28, 2011) ["While some critics fear fragmented markets will dry up liquidity, others worry about the details of clearing."]
I think you get the point. Let's move on to the next chapter, where optimism starts to prevail. As we move through 2011, we find articles such as "Credit Markets to Enjoy Liquidity Boost Under Dodd-Frank" and "SEFs Will Improve Global Swaps Market: Survey."
The next chapter is also predictable: all of the fears and hopes give way to a period of confusion and activity as implementation is in full swing. Article titles include language such ask "risk," "pain points," "seeing the forest through the trees." In the midst of this comes my favorite of this period, the classic "Financial Industry Is Massively Underprepared for OTC Regulation" of January 2013.
So where are we now? Consider these titles from the last month of WS&T:
- The New World of SEF Trading: Paving the Way for Change in Trading OTC Derivatives
- SEFs Arrive: A New Market Structure Is Born
- MarkitSERV has Handled Over $1 trillion in SEF Trades in Past 10 Days
Granted, it is a bit early to fully predict the impact of the new structure. One of the biggest benefits is likely to be the value of transparent data to all players in the market, not just the regulators. And there are still many outstanding questions on where do we go from here. But in the midst of daily outages and concerns over 2014 funding, it is good to take a pause. We made it. We aren't dead, we are stronger.