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November 19, 2020

CFTC Facilitates Non-Competitive SEF Trading


Thursday, November 19, 2020

Contact: Pamela Russell at


The CFTC Should Not Have Permanently Codified Supposedly

Transitional Exemptions from Competitive Trading


Washington, D.C.  –  Joseph R. Cisewski, Senior Derivatives Consultant and Special Counsel for Better Markets, issued the following statement regarding the Commodity Futures Trading Commission’s (CFTC) action to permanently exempt so-called ‘package transactions’ from competitive execution on swap execution facilities (SEFs):

“When it first stood up the new swaps regulatory framework in the aftermath of the 2008 financial crisis, the CFTC approved a number of reasonable ‘phase-in’ measures designed to facilitate an orderly transition to the new Dodd-Frank market structure and prevent short-term regulatory disruptions, distortions or dislocations that might adversely affect farmers, producers, and other market participants. Those transitional measures—like novel exemptions for so-called ‘package transactions’—made sense six years ago, and the CFTC’s responsible approach paid dividends as derivatives reforms were implemented across markets without adverse short-term consequences.

“The time has come to let some of these transitional measures expire. The SEF markets are no longer in transition. They have become well-established, well-functioning, and well-understood elements of the derivatives market structure, and their technological capabilities and offerings are impressive. Indeed, many SEFs more closely resemble technology or information companies than the pit-traded derivatives exchanges featured in the 1983 comedy, Trading Places. These technology-driven marketplaces can facilitate multi-legged swaps trading strategies (‘packages’) without siphoning much-needed liquidity away from the rest of the market and imposing undue execution costs.

“Furthermore, the SEF marketplace has sorted itself into a small number of trading venues, where network effects and the largest derivatives dealers insidiously extract concessions to limit competition. The CFTC, if anything, should be seeking to drive transactions into competitive execution, not pull away that liquidity by making transitional exemptions from competitive execution permanent and further empowering four derivatives dealers (already representing 86.7% of derivatives held within the U.S. banking system) to trade around the market rather than through it.

“In short, rather than codifying yet another way for a very small number of dealers and others to avoid competitive, transparent execution through the Dodd-Frank Act’s new multilateral trading venues, the CFTC should have been focused on statutory objectives to increase pre-trade transparency in the swaps markets and end the dark, bilateral, dealer-dominated swaps market structure that played a key role in bringing the U.S. and global financial markets to the brink of disaster.”


Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit

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