News: OTFs are Go | But is a SEF = an OTF?

14 June 2013 | Bill Hodgson

According to reports from inside Europe, the concept and reality of an Organised Trading Facility (OTF) will become a reality under MiFID 2 in the medium term future. The implication is that OTC products will have an electronic equivalent to the US SEF, whether trading will be mandated, and to what extent is unclear as yet. What will also be interesting is to analyse whether the operator of a SEF under Dodd Frank will need to make any changes to also become compliant with the (to be announced) OTF rules in Europe. And of course yet more workflow integration between OTFs and CCPs, and the erosion of the traditional confirmation flow via MarkitSERV perhaps. UPDATE 1-EU states in deal on market rules-EU official | Reuters.



Reblogged this on Carl A R Weir's Blog.

Bill - Correct me if I'm wrong but haven't you already got the answer as most of the D2D IDBs and D2C Brokers are already operating as MTFs?As I understand it, isn't the OTF (a lite-MTF structure) simply being introduced to capture the BCNs, dark pools etc that fall through the gaps and currently aren't regulated?I also believe that the OTF allows a quicker route to market for a swaps broker but at a certain threshold, still to be defined by implementing measures, would require the OTF to convert to an MTF anyway? I think this was why the IDBs in the past few years just went ahead with MTF registration anyway?

I accept all you say but this will encompass OTC products, until we see the regulations, we won't know if electronic trading of OTC products will be mandated and under what precise circumstances RFQ minimum quotes, block size exemptions etc.

Unless the SEF was located in Europe, it couldn't be an OTF as the EU regulates based on location unlike the US. Hence the SEF would have to be regulated as a third country venue to which different stipulations apply.

Ok, but perhaps from a functional point of view, including trading process, block sizes, etc, it will be interesting to see how close they come. I appreciate they aren't actually the same from a regulatory point Of view.