CFTC to Vote on Dodd-Frank SEF Rules

The Commodity Futures Trading Commission (CFTC) will vote next week on the Swap Execution Facilities (SEF) rules overseeing derivatives under the Dodd-Frank Wall Street Reform Act.

On May 9th, the CFTC issued a notice saying a formal vote will take place on May 16th to finalize the SEF rules that were proposed nearly two years ago. SEFs are venues for executing swaps that were created under the Dodd-Frank Act in order to allow of greater transparency.

The proposed SEF rules have been the source of many debates within the industry. Details surrounding one of the issues, whether voice broking (trading over the phones) will still be allowed, have yet to be revealed.

Another issue of debate has been the request for quotation (RFQ) model. The original proposal required that buyers submit at least five RFQs in order to trade swaps.

Those who opposed the five RFQ minimum argued that the bank that eventually executes the client trade will struggle to hedge the position because four rival banks will already know the details of the deal.

According to the Financial Times, the final SEF rules will decrease the RFQ minimum to two before increasing to the minimum to three after a 12-month period.

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