What is a swap execution facility?

A swap execution facility (SEF) is regulated platform or trading facility which is designed to enable multiple participants to execute swap transactions by accepting bids and offers. Historically, swaps have been traded as an over-the-counter (OTC) product with minimal transparency. The development of SEFs aims to increase trade transparency significantly.

Where have you heard about a swap execution facility?

The development of swap execution facilities represents a major step forward in increasing transparency in the OTC derivative markets. Working toward greater transparency in the financial derivative markets is a key goal of the Dodd Frank Act of 2010, which was drawn up a response to the 2008 financial crisis.

What you need to know about a swap execution facility.

Swap execution facilities (SEF) are an attempt by the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to bring swaps trading in line with other ‘exchange traded’ products such as financial futures and options. Trading on an exchange-style platform offers a much greater degree of price transparency to market participants than trading ‘over-the-counter’, where participants relied on an old-style voice broker to execute their transactions and trades were not posted for the rest of the market to see. Trading on a SEF also moves participants toward clearing-house settlement for swaps, again mirroring the exchange-traded futures markets.