Swap Execution Facility (SEF)
Welcome to the 360T SEF
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”) was signed into U.S. federal law. The Act made changes to the financial regulatory environment in the United States as a way of promoting financial stability by, among other things, improving accountability and transparency in the financial system. Within the Act, Title VII addressed concerns regarding the regulation of the over-the-counter swaps markets, and in particular required certain OTC derivative and FX instruments to be traded on a regulated SEF.
Following interpretation and implementation of the swaps trading rules by the US Commodity Futures Trading Commission (CFTC), 360T Inc. commenced SEF operations under a temporary registration order in October 2013. On 22 January 2016, 360T Inc. was granted full SEF registration status in the United States.
Although established in the United States, 360T SEF is also available in other countries including a number of provinces in Canada, in Switzerland, Australia and in certain countries within the European Economic Area. Details can be provided upon request.
360T SEF offers trading in those foreign exchange financial instruments classified as swaps in accordance with the provisions of the Act. At present, this applies to FX options, FX non-deliverable forwards and FX Swaps (NDF and NDS). 360T SEF services provide clients with greater transparency and enhanced control at every stage of the trading lifecycle, and equally enables clients to comply with their own regulatory obligations at appropriate stages of the trading life cycle.
If you are interested in exploring the opportunities presented by 360T, then please contact your account manager or write to the 360T compliance department email below, who will provide you with a copy of the SEF Participation Agreement.
Please email: firstname.lastname@example.org
If you are interested in discussing regulatory matters more generally, then please contact email@example.com
360T Trading Networks, INC. Execution Solutions
360T offers execution solutions consisting of (i) a request for quote (“RFQ”) functionality and (ii) a central limit order book (“CLOB”) that interacts with the RFQ functionality.
1. Request for Quote
- The RFQ process begins when a market taker sends a “request for quote stream” to one or more market makers with whom it has existing trading relationships.After the market makers receive this request, they then determine whether and under which conditions they would be willing to trade with the market taker. These determinations are typically made automatically via pricing engines utilized by marketmakers. While a market maker will know the market taker’s identity, it will not know the identity of the other market makers with whom it is competing.If the market taker desires to transact with a market maker, it will send an execution request to the market maker. The market maker then may either accept or reject this execution request.
2. Central Limit Order Book
- The CLOB serves as a mechanism pursuant to which Participants may post limit orders that are displayed to other Participants and which may be filled on an all-or-none basis. All limit orders must have a minimum time-in-force of not less than 15 seconds, and thus cannot expire or be canceled before this minimum time period has elapsed.A limit order will be displayed as executable as between Participants that have established a counterparty relationship if the order is within the credit limits for such Participants as communicated to 360T. Otherwise, the limit order will be displayed as having an indicative price.Opposing limit orders that match are not automatically executed on the CLOB. Instead, a Participant that desires to execute against a limit order displayed by another Participant must contact such Participant directly in order to consummate such execution.The RFQ platform and CLOB interact as follows:
- If a response to an RFQ matches an executable limit order that is resting in the CLOB, then the Trading System will display that executable limit order to the market taker that initiated the RFQ. In addition, the best indicative limit order resting in the CLOB also will be displayed to the market taker.
- If a market maker provides a quote via its pricing engine in response to an RFQ which matches a limit order that it has placed on the CLOB, only the most recent quote will be displayed to a market taker.
3. Reporting and Clearing
- 360T reports all SEF transaction data to the Depository Trust Clearing Corporation (“DTCC”) as its Swap Data Repository as required under Commission Regulation 43.3(b)(1).
- None of the instruments offered by 360T are currently subject to clearing, however 360T is in the process of signing an Agreement with a middleware provider that will assist it in performing pre-trade credit checks and transmitting trade data to the various derivatives clearing organizations.
Schedule of Fees
- For Non-Deliverable Forward (NDF) trades executed on 360T SEF, the charge will be €10.00 per broken million EUR.
- For Non-Deliverable Swap (NDS) trades executed on 360T SEF with a maturity less than one (1) month, the charge will be €2.50 per broken million EUR.
- For Non-Deliverable Swap (NDS) trades executed on 360T SEF with a maturity equal to or greater than one (1) month, the charge will be €5.00 per broken million EUR.
- For FX Options trades executed on 360T SEF, the charge will be €10.00 per broken EUR million.
Fees are only charged to the Market Maker.
- Is 360T registered as a Swap Execution Facility (SEF)?
Yes, 360T was granted full SEF registration by the US Commodity Futures Trading Commission (CFTC) on 22 January 2016.
- What types of transactions does 360T offer on its SEF platform?
Currently 360T SEF only offers Permitted Transactions (as defined below) to be traded on our platform, which includes trading in Non-Deliverable Forwards (NDF), Non-Deliverable Swaps (NDS) and FX Options.Although 360T does not currently offer trading in Required Transactions (as defined below), once NDF/NDS and FX Options have been mandated for clearing and therefore become Required Transactions, they will continue to be offered on the platform. It is, however, not anticipated that NDF’s will not become subject to a clearing mandate until end 2016 at the earliest, and options sometime thereafter.
- Will FX Spot and Forward instruments be subject to SEF Trading?
No. There is no requirement for Spot and Forward FX to be traded on a SEF and hence they can continue to be traded over the 360T platform as before.
- What are Permitted Transactions?
“Permitted Transactions” are transactions that are not subject to Minimum Execution Methods. However, SEFs must still be registered with the CFTC even if they only provide multiple-to-multiple trading in those instruments listed as Permitted Transactions.
- What are Required Transactions?
“Required Transactions” are swap transactions subject to the trade execution requirement that have been made available to trade. Other than block trades in such swaps, as described below, Required Transactions must be executed on a SEF through an Order Book or RFQ system that operates in conjunction with an Order Book. 360T provides the capability to trade via an Order Book as well as an RFQ system working in conjunction with that Order Book.
Trading on SEF Requirements
- Is electronic trading for U.S. persons mandatory on a SEF?
Trading via a SEF is required for those entities defined as US Persons unless they are subject to some form of exemptive relief.
- As regards the need to trade electronically; although the rules stipulate that Trading on a SEF may occur through any means of interstate commerce, the U.S. regulators have clearly indicated that electronic trading via competently SEF configured platforms is highly preferable.
- Residual OTC trading not conducted on a SEF may be subject to additional capital requirements.
- Do I need to trade over a SEF?
As aforementioned in Q7, you need to determine your own legal position as to whether or not your status as a U.S. or non-U.S. entity requires trading to be done on a SEF.
- What is required in order to trade via the 360T SEF venue?
All entities that want to trade on 360T’s SEF are required to sign the 360T SEF Participation Agreement. This Participation Agreement will create a contract with 360 Trading Networks, Inc., our SEF registered entity in the U.S. The Participation Agreement includes obligations of the client, representations required by the CFTC, user and clearing information and the 360T SEF Rulebook.
- In addition to the Participation Agreement, each entity will be required to register itself as well as a SEF Administrator within the 360T CRM system. Please contact your 360T account manager for assistance with the documentation and setup.
- When can I get a copy of the Rulebook and on-boarding documentation?
Please speak to your 360T account manager in order to obtain copies of these documents. Alternatively, copies of the 360T SEF Rulebook are freely available via the CFTC website as of [date].
- Your account manager can help you register a SEF Administrator as well as your company for SEF participation within the 360T counterparty relationship management tool (CRM).
- What changes will be required for autopricing of trades as market maker?
If reading 360T’s Application Programming Interface (API), it is not necessary to make changes. Since December 2012, the API has included a field for the Unique Swap Identifier (USI) which is the data we are required to capture. However, for your convenience, we will change our API to add a few fields in the quote request and order messages. The changes would include, to name a few, whether or not the counterparty is a US person, the Swap Data Repository (SDR) we report to the Depository Trust & Clearing Corporation (DTCC), and whether the transaction is a Required Transaction or not (currently we only offer Permitted Transactions). Once mandatory clearing takes effect for NDF, NDS, and FX Options, changes will need to be made but not at the moment. Please note the API change only affect those that autoprice trades as a market maker.
- If we read your API, you will need to provide us with the additional fields that you may want to include.
- Will invoicing change in any way?
You will receive separate invoices for transactions performed on-SEF and off-SEF. Invoices for trades executed on our SEF will be sent by 360 Trading Networks Inc., while invoices for trades executed off-SEF will continue to be sent by 360 Treasury Systems AG.
- How does 360T’s SEF Order Book work and will it be anonymous? Can we limit who we might encounter when trading on that platform?
The SEF Order Book will show all orders in FX options and NDFs. However, orders from participants with whom there is no existing relationship will be shown as anonymous. These orders will only be visible for market transparency and price display. Execution is still only possible with market participants which you have enabled in your 360T counterparty relationship management (CRM) tool.
- Will there be any other functional changes with the new software, or any changes to operational hours or platform support?
None changes are anticipated.
- How do I get onto 360T’s SEF platform?
360T’s SEF platform is embedded in the 360T trading platform. Therefore, in order to access 360T’s SEF platform, a user will log into the system as normal subject to having completed SEF documentation and being enabled on our SEF platform.
- Does 360T determine who is trading on our SEF platform?
Yes, 360T determines if a client is considered as SEF relevant based on location. U.S. clients and entities trading with U.S. clients can only trade these instruments if enabled on our SEF platform. If a client is determined to be SEF relevant, users under this entity can only trade NDF, NDS and FX Options on our SEF platform.
- As an example, if an Australian corporate wants to trade an NDF with a U.S. bank, this trade will be required to be done on the SEF platform and both of these entities will be need to be SEF participants in order to negotiate the terms of the deal.
- On the other hand, if an Australian corporate wants to trade an NDF with an Australian bank, this trade will be done off-SEF and neither entity will be required to be a SEF participant in order to negotiate the terms of the deal.
To differentiate between trades done on and off-SEF, all SEF related items (platform functions, entity names, products etc.) are displayed in green color in the user interface and “SEF” in superscript.
- Can we trade on both a SEF and Non-SEF platform?
Yes, an entity enabled on our SEF platform will have the ability to trade on both the SEF and non-SEF platforms. However, the extent to which you may do so will depend on your status as an US Person.
- U.S. entities or entities trading with U.S. counterparties are required to be SEF participants in order to trade NDF/NDS and FX Options.
- Non-U.S. entities trading with non-U.S. counterparties will continue to have the ability to trade NDF/NDS and FX Options without disruption.
- Non-U.S. Swap Dealers have the option to trade NDF/NDF and FX Options on SEF if dealing with a U.S. person or off-SEF if dealing with a Non-U.S. person.
360T ensures that entities NOT required to trade NDF/NDS and FX Options on SEF have the ability to trade these instruments off-SEF. It is worth noting that clients enabled on 360T’s SEF will not automatically have all SEF instruments traded on our SEF.
- For example, a UK bank enabled on 360T’s SEF trades a NDF with a UK corporate that is also enabled on SEF. 360T’s SEF platform understands that as this trade is done between two non-U.S. counterparties, it does NOT need to be done on the SEF platform and will therefore execute the trade off-SEF.
- However, if the same U.K. bank trades a NDF with an U.S. corporate, 360T SEF understands this trade is required to be done on-SEF and will execute the trade on-SEF.
- As some trades are executed via SEF and some off-SEF, could you please indicate which trades will be on-SEF vs. off-SEF?
See table below
Requester Provider On-SEF / Off-SEF Is US Person Is US Person On-SEF Is not US Person On-SEF Is not US Person Is US Person On-SEF Is not US Person Off-SEF
- What is the position for Prime Brokers?
If the Prime Broker qualifies as an US Person then this will be considered a SEF trade.
- Would all clients who trade via 360T’s SEF platform be U.S. persons or will there be non-U.S. persons clients also?
Both U.S. persons and non-U.S. persons will be enabled on 360T’s SEF platform. Whether a trade is on-SEF or off-SEF depends on configurations as discussed above.
- Would non-US persons trade over SEF?
Yes. If a Non-U.S. entity trades with U.S. counterparty, this trade will be required to be done on SEF.
- For example, a trade between an Australian corporate and a U.S. Bank will need to be done on SEF. A trade between a U.S. corporate and an U.K. bank is on SEF. A trade between an Australian corporate and an Australian bank is off-SEF, even if both counterparties are SEF enabled on 360T’s SEF.
*We know we are stressing the point, but we strongly advise, particularly our non US based clients, to determine whether or not they may be considered an U.S. person or whether they may be subject to SEF trading requirements in any other capacity.
- Will there be changes to the SEF and non-SEF interfaces?
No, it is the same interface that will be used for both SEF and non-SEF transactions.
- What is the workflow for block trades?
We will report each executed trade separately. If you originally requested a block (i.e. a transaction with several legs executed all at the same time), it is still a series of single trades that are executed and reported.
- When can I test / see a demo of 360T’s SEF platform?
Our integration test environment is planned to support the SEF specific fields (USI, on/off SEF, reporting party, SDR…) beginning of September 2013.
- SEF features are currently available can be demo’ed on a separate DEMO server. Please contact your 360T account manager for such a demo.
- To which SDR will 360T be reporting?
360T will be reporting directly to the DTCC’s SDR.
- Swap Dealers and Major Swap Participants may have their own reporting obligations under the CFTC regulation.
- How is the confirmation process being handled in 360T’s SEF environment?
360T’s SEF will provide each counterparty to an executed transaction with a written record of all of the terms of the transaction.
- Is it the legal responsibility of the SEF to send the legal confirm and report the confirm to the SDR?
360T provides confirmation data to the SDR but not the confirmation itself.
- Will any physical confirmation be generated?
No. 360T does not offer any confirmation process other than electronic confirmation into commercially available confirmation matching services.
- Will the reporting party be returned to us via the trade messages?
Generally speaking the market maker will be the reporting party to a trade. However, this may differ subject to certain scenarios. This information will be part of the order messages via the APIs.
- Will the USI be available for all products?
Yes, the USI (Unique Swap Identifier under the Dodd Frank Act) is currently generated technically for all products. It is published in the post-trade messages only for the Permitted/Required Products, i.e. NDF, NDS and FX Options.
- Clearing – What Central Clearing Counterparties (CCPs) does 360T connect to?
None of the financial instruments to be traded on 360T’s SEF platform are at present required to be cleared. Therefore, at this time, we are not connected directly to any CCPs. However, please be assured that 360T has firm relations with CCP’s and that when clearing is mandated for instruments traded on 360T platform, we will be connected to a suitable CCP to meet both your and our needs.
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