The head of Tullett Prebon's SEF argues that current low market volatility may be a significant factor in causing low SEF trading volumes. In the current low volatility environment, he argues that derivatives speculators that must trade on SEFs are less active.
However, electronic trading platforms for non-speculative transactions that utilize the end-user clearing exception should be immune to this influence because of the non-speculative nature of their transactions.
Aside from the shifting regulatory playing field and buy-side unfamiliarity with the structure, there is a more fundamental cause behind the slow start of swap execution facilities: low volatility that has dimmed the appeal of trading swaps. “Volumes will pick up once you have a little volatility,” said Shawn Bernardo, chief executive of Tullett Prebon’s tpSEF. Bernardo expects a seasonal post-summer uptick in SEF volumes, but a broader, more sustainable increase may not be in the offing until 2015. “You’re going to need to see some volatility for SEF volumes to go up. I don’t necessarily believe that you’re going to see that prior to next year,” he said.