Long live the difference?

Author: | Published: 2 Mar 2011

The US Commodity Futures Trading Commission (the CFTC) and the US Securities Exchange Commission (the SEC and, collectively with the CFTC, the Commissions), in connection with their respective rulemaking obligations under the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA), have recently published proposed rules relating to Swap Execution Facilities.

While the Commissions have thus far broadly aligned their rulemaking under the DFA, the two sets of proposed rules reflect fundamentally different approaches.

It is important to consider the principal differences, bearing in mind that this may mean that largely correlated derivatives products such as index credit derivatives and their component single-name transactions may have to be executed on very different execution venues.

The DFA, signed into law by President Obama on July 21 2010, makes sweeping reform of the derivatives markets in the United States. The DFA distinguishes, inter alia, between swaps, which are to be regulated by...