CFTC’s O’Malia- SEF packaged swaps to be phased-in

CFTC Commissioner Scott O’Malia has told the mlex news organisation that mandatory SEF trading of packaged swaps will be phased-in. “We’re not going to have a big bang,” O’Malia  said in an interview at last week’s Futures Industry Association’s annual conference, “We’ll have a phase-in by products.” Although lacking in details, this is a nod to the “thoughtful approach” promised by the agency at the time of its 10th February no-action letter with respect to packaged swaps, which expires on 15th May 2014. Market participants commented that the mooted phase-in should be determined by product complexity.

The question is material- packaged swaps are estimated to comprise 20-30% of market volume. The problem is technical, the majority of SEFs currently lack the infrastructure to perform simultaneous pre-trade credit-checks on  the multiple legs of a packaged structure- a difficulty unlikely to be fully resolved by 15th May. The packaged swaps sideshow-saga is perhaps further evidence of a CFTC in transition, from reality-challenged, ex-cathedra lawmaking to a more collaborative, responsive agency.