A Swap Execution Facility (SEF) is an electronic trading system for executing swaps transactions, regulated by the United States Commodity Futures Trading Commission (CFTC) and meeting the Dodd-Frank requirements. The CFTC defines a SEF as a “system in which multiple parties have the ability to execute swaps by accepting bids or offers from multiple participants.” A SEF must offer a Central Order Book where firm prices can be posted. A SEF may also offer Request for Quote (RFQ) or Third Party Trading.
The execution of all swap transactions subject to the CFTC’s clearing requirement must occur on a SEF (or DCM), except where no SEF or DCM makes the swap “available to trade” or for swap transactions subject to the end-user clearing exception.
Required Transactions are cleared swaps that have been ‘Made Available to Trade’ (MAT) on a SEF or Designated Contract Market (DCM). These swaps are a sub-set of those subject to the CFTC’s clearing mandate. They must be traded on a SEF (or DCM) and are subject to one of the minimum execution methods:
Permitted Transactions are any swaps that are NOT subject to the clearing and trade execution mandates.
Block Trades are exempt from the minimum execution methods of Required Transactions but Block Trades in MAT swaps must be processed on a SEF or DCM. Thresholds for swaps vary by instrument and are based on the tenor and spread of the swap.
Authorized DCOs: Chicago Mercantile Exchange (CME) and the London Clearing House (LCH)
The Clear Markets system is designed to accommodate authorized customer and agency models.