Earlier this year, the US Commodities Futures Trading Commission (CFTC) required that swap execution facilities (SEFs) with temporary SEF registration status come into full compliance with all applicable SEF rules beginning on October 2, 2013.
Originally, those rules were thought to apply only to transactions that would be required to trade on a SEF. However, confusion over Footnote 88 and the definition of a US person have resulted in liquidity concerns from market participants. Footnote 88 states that "a facility would be required to register as a SEF if it operates in a manner that meets the SEF definition even though it only executes or trades swaps that are not subject to the trade execution mandate." This means that the SEF rules would apply to any transaction the SEF offered, whether or not that transaction is mandated to trade on a SEF.
These concerns prompted ISDA to conduct the SEF Market Fragmentation Survey to obtain a clear picture of potential market disruption or fragmentation resulting from SEF rule implementation.
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