US BUYSIDE BIDE THEIR TIME.

Despite the government shutdown and last-minute scrambling to finalise swaps execution facility (SEF) documents and iron out technology glitches, there were no major breakages on 2 October when trading went live through SEFs. However, the buyside in the US are still not ready to take the plunge, preferring instead to adopt a wait and see attitude, according to a study conducted by consultancy TABB Group.

Canvassing 40 firms managing a total of $13.7 trillion in assets, TABB found that almost 80% of US buyside firms avoided the platforms on the first day they were introduced. One reason is that the Commodity Futures Trading Commission, the US derivatives regulator, gave the industry breathing space after market participants said they were struggling to prepare for some of the aspects of the new regulations. The delay means that they have the option to continue trading through private negotiations with their counterparties, a practice the Dodd-Frank rules want to limit.

As a result, on 2 October only 12% of those questioned conducted live trades on SEFs, with a further 10% conducting test trades on the platforms. Only 7% of respondents hit the pause button on swap trading altogether although 27% of US buyside firms detected a slump in trading volumes. The study partly attributed this to a decline in the number of non-US firms trading in the market, adding: “Liquidity has also been driven offshore, as non-US persons shunned the US swaps market to avoid compliance with the Dodd-Frank Act.”

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