Back to top

Analyst Blog

Recently, a leading operator of regulated exchanges and clearing houses, Intercontinental Exchange Inc.'s Swap Execution Facility (SEF) has been granted a temporary registration status by the Commodities Futures Trading Commission (CFTC). CFTC is responsible for monitoring the deals and trade in interest-rate swaps, commodity linked swaps etc.

The Dodd–Frank Wall Street Reform and Consumer Protection Act mandate the use of a platform for regulated trading and clearing of swaps. The Swap Execution Facility is one such platform. In order to shift trading of security-based swaps to regulated trading markets, the Dodd–Frank Act formed security-based SEFs, which would provide more transparency and reduce risks associated with such trading. The security based SEFs are required to file an application form in order to register with the Commodities Futures Trading Commission.

Intercontinental Exchange’s SEF is expected to be unveiled on Sep 30, 2013. After it starts operating its swap execution facilities, it will be able to provide its customers with a better platform through which they can execute trading in an assured and flexible manner. Thus, we believe Intercontinental Exchange’s strong brand name and approval by CFTC will help it gain customer confidence thereby assisting it to establish a robust Swap Trade.

Intercontinental Exchange’s Swap Trade will provide index credit default swaps (CDS) through its swap execution facility. Single name CDS will be provided across North American and European and Emerging Market corporates and sovereigns.   

Last week wholesale brokerage service provider, GFI Group Inc. received approval from CFTC while leading futures exchange operator, CME Group Inc. filed an application to be registered as a swap execution facility.

Rising operating expenses has been a matter of concern for Intercontinental Exchange. As a result we currently have a Zacks Rank #4 (Sell) on the company. Among other financial market operators that are worth considering, OTC Markets Group Inc. carries a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.