The rigid regulatory climate may have some on Wall Street feeling a bit uneasy these days, but at least one regulator is probably winning fans with a plan that may save banks billions in the long run.
The Commodity Futures Trading Commission's revised rule proposal for the private swaps market might ultimately limit competition between newly formed swap execution facilities and boost trading volumes in the process, Bloomberg reported, citing a report by Moody's analyst Alexander Yavorsky.
The latest rule proposal, which was passed last month by the CFTC in a 4-to-1 vote, will enable banks to show negotiable prices on a request-for-quote system that can be limited to a select number of trading partners. Yavorsky told Bloomberg such a setup bodes well for banks over the long haul.
"The RFQ model will reduce pressure on market-making revenues - billions of dollars per dealer," Yavorsky said. A key question is how much the per-trade profit reduction is offset by an increase in the number of trades, he said.Meanwhile the latest proposal is in the midst of a comment period and the CFTC must vote on it again before making it final. As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio
"This is why the SEF rules are absolutely critical," he said. Yavorsky couldn't estimate the bank revenue saved by the RFQ model option, he said in an interview.