CFTC Green Lights First Contract Market for Derivatives
October 4, 2012
The U.S Commodity Futures Trading Commission (CFTC) has approved New York-based TrueEX as the first regulated exchange serving the $300 trillion global interest-rate swaps market.
TrueEX, which is the first Designated Contract Market operating under rules emanating from passage of the Dodd-Frank Wall Street Reform Act of 2010, also plans to expand into other highly-traded derivatives.
Under Dodd Frank, regulators have been seeking to bring over-the –counter derivatives trading onto electronic venues. Until now, swaps of interest-rate risks have been conducted largely via contract exchanges handled largely over the phone, without regulatory oversight, pre-trade or post-trade transparency, or a central clearing party taking on the risks of each side of the trade.
“TrueEX is a significant step in the evolution of the derivatives markets,” said founder and Chief Executive Officer Sunil Hirani. “We are bringing transparency for the first time to this opaque, multi-trillion dollar market. Moving the derivatives markets to an exchange-traded and centrally cleared environment will mitigate systemic risk, reduce execution and processing costs, and provide much-needed transparency.”
The TrueEX electronic exchange is designed to serve market makers as well as asset managers, hedge funds and other buy-side firms. trueEX is currently testing its operations with market participants and will expand its rampup efforts in the fourth quarter. trueEX expects to commence formal operations in the first quarter of 2013.
TrueEX will connect to a variety of clearing houses, which has not been done on other regulated exchanges, to date.
TrueEX is being launched by financial technology entrepreneurs previously involved in building early trading, processing and clearing platforms for handling derivative transactions.
“The current lack of confidence in global markets – particularly in derivatives markets – has created the impetus for a regulated, transparent and rules-based trading platform,” Hirani said. “This is precisely what trueEX will deliver, allowing both market-makers and buy-side firms to on-board as quickly as possible to meet their regulatory requirements. Additionally, we anticipate offering futures trading as soon as practicable.”
Earlier this month CME Group announced plans to launch a deliverable interest rate swap futures contracts in mid-November.