Amid the recent rash of applications to run swap execution facilities (SEFs), foreign exchange (FX) trading technology provider Integral Development filed earlier this week to launch the first SEF specializing in FX.
FX swaps and FX forward are exempt from clearing, and rules stemming from the Dodd-Frank Act require FX options and non-deliverable forwards (NDFs)—the latter necessary to hedge currency risk when doing business in countries with capital controls such as China and India—to be cleared. Integral’s SEF will initially trade NDFs, with other types to follow.
Integral’s move follows several by SEF application filings by a variety of other Wall Street firms, indicating the likelihood of abundant liquidity and competition in the market for more standardized FX swaps. Firms that have announced applying for SEF status include Tradeweb Markets, MarketAxess, GFI, trueEx, State Street and TeraExchange. Firms anticipated to apply include ICAP, Tullet Prebon, BGC Partners, and Tradition Financial Services—all inter-dealer brokers—as well as start-up platform Javelin Capital Markets.
Firms have until late September to apply for SEF status.
Integral appears to have submitted the first SEF application to trade only FX swaps. Its FX Grid network provides global access to virtually every type of business involved in FX, including liquidity providers, prime brokers, banks, brokers, investment management firms, hedge funds and corporates. Pending regulatory approval, Integral’s SEF will provide the necessary connections to liquidity providers, clearinghouses, and swap data repositories via the cloud, requiring no upfront costs for users and providing a pay-as-you-go fee model.
“We have created a SEF that preserves what is best about [over-the-counter] markets–relationships, choice, resiliency, and bespoke business models–thereby minimizing any potential disruption to our customers’ foreign exchange trading businesses,” said Harpal Sandhu, CEO, at Integral, in a statement.