AFME Panelists Predict 'Survival Of The Fittest' In Electronic Trading Platforms February 15, 2012

Regulatory developments under MIFID II and EMIR (European Market Infrastructure Regulation) will require the trading of derivatives to move away from an OTC environment to e-trading platforms and exchanges where pre- and post-trade prices are fully transparent.

"Since e-trading today still represents a minority of overall credit trading by volume, we believe there is a lot of potential for growth in e-trading within our core trade size bracket," said Joe Feerick, Head of European Product Management, who added: "We've been conducting extensive research both in the US and in Europe to quantify the transaction cost savings available to investors through electronic execution and have found consistent, quantifiable savings in every maturity and size bucket."

Lack of counterparties remains an issue, and one that could give compliance officers a headache, but one of the great benefits of e-trading platforms and the multi-dealer model is, said Feerick, the fact that they "provide better pre-trade, at-trade and post-trade transparency, which should hopefully reassure those in compliance".

SEFs Prepare to Self-Police February 3, 2012

NFA and MarketAxess Holdings have entered into an agreement that paves the way for NFA to perform regulatory services for MarketAxess' planned swap execution facility (SEF).

"The current agreement covers pre-launch services such as building appropriate systems, establishing testing connectivity, and creating reports in preparation of the services that will be performed once the SEF becomes operable," MarketAxess told Markets Media in e-mailed comments. "The formal Regulatory Services Agreement will address the ongoing surveillance and monitoring services that NFA will provide."

MiFID Muddle February 2, 2012

Under MIFID II, OTC derivatives can be traded on regulated markets, MTFs, or on a new category of trading venue: organized trading facilities (OTFs). "We do not believe that the OTF category is appropriately defined; indeed, the purpose of the OTF category is unclear to us," Jim Rucker, credit and risk officer at MarketAxess, told Markets Media. "We believe that the transparency, organisational and market surveillance arrangements applying to MTFs and OTFs should be identical wherever possible."

NFA Signs Agreement with MarketAxess to Provide Regulatory Services to MarketAxess' Swap Execution Facility January 31, 2012

The National Futures Association (NFA) and MarketAxess have entered into an agreement that paves the way for NFA to perform regulatory services for MarketAxess' planned swap execution facility (SEF). The Agreement establishes a preliminary framework for the exchange of information and the development of technology standards that will enable MarketAxess and NFA to develop, test and launch automated trade practice and surveillance systems and also to develop procedures and processes necessary for MarketAxess to fulfill its SEF self-regulatory obligations. Upon the issuance of the Commodity Futures Trading Commission's (CFTC) final SEF rules, NFA and MarketAxess anticipate that they will enter into a formal Regulatory Services Agreement.

Jim Rucker, Credit and Risk Officer, MarketAxess, said: "We're pleased to partner with the NFA to help MarketAxess prepare for the anticipated compliance and surveillance requirements under the Dodd-Frank Act. MarketAxess is fully committed to registering as a SEF as soon as the regulations permit, and working with the NFA will facilitate our preparations in this regard."

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Derivatives Participants Worry about Clearing Risk Wall Street & Technology, Jan 26, 2012

"What everyone is trying to solve for is that until the trade is accepted for clearing there is still bilateral risk between the two counterparties to the trade," observes Jim Rucker, chief operations, credit and risk officer at MarketAxess, an electronic trading platform for corporate bonds, high yield credit derivatives that plans to register as a SEF. "What the new model is meant to do is to place the clearinghouse in the middle, so there is no risk between these two counterparties. That all works once the trade is accepted for clearing," emphasizes Rucker, in an interview today.

Electronic CDS Could Take Treasury Cue IFR, Jan 27 2012

Credit default swaps are increasingly moving towards electronic trading. Industry participants expect CDS Index trading could eventually trade in a similar manner to treasuries, with small minimum lot sizes and actionable live streaming quotes.

Trading platform MarketAxess is ready to partake in that streaming when the market is ready. It recently upped the number of dealers that can stream CDS quotes to their platform to nine.

"You're starting to see dealers and investors prepare for new regulations and embrace electronic trading for a greater percentage of their derivatives business," said Richard McVey, chief executive and chairman of the board at MarketAxess. "You're seeing a pick-up in electronic trading in interest rate swaps and CDS."

Stanford Professor Becomes Latest to Caution Against Volcker Rule Wall Street Journal, Jan 18, 2012

The proposed rules are ambiguous because they suggest regulators will allow normal market making to continue, said Rick McVey, chief executive of bond trading platform MarketAxess, yet normal market making often includes holding securities on a dealer's books in order to make a profit downstream, something regulators may not allow.

"We are hearing very different interpretations from dealers that are all reading the same proposals," said McVey. "We remain hopeful that given the importance of the corporate bond market to investors, issuers and the economy, final rules will permit dealers to operate in their normal market making capacity."

EC Unleashes Stormy Seas The Trade, Dec 31, 2011

Jim Rucker, credit and risk officer at fixed income market operator MarketAxess, believed the rules handed down from Washington seemed more prescriptive than the principles-based approach taken by Brussels. "In the US, the regulators require specific trading protocols for execution, whereas there is nothing like that level of detail in MiFID II," Rucker said. Currently, MarketAxess is an MTF in Europe and the firm believes it will be able to remain so. "But there are similarities and differences between the two regimes that need to be considered," said Rucker.

MarketAxess well placed to support e-trading objectives of MiFID II/MiFIR HedgeWeek, Dec 13, 2011

MarketAxess is a leading global client to multi-dealer electronic trading platform and has particular expertise in the trading of corporate bonds and CDS. Under MiFID II it is well placed to support the regulators in their objectives to bring greater transparency to OTC markets, but Joe Feerick, European Product Manager at MarketAxess, told Hedgeweek that the firm was aware that both sell-side and buy-side institutions share concerns that MiFID II's transparency requirements need to be carefully calibrated to the characteristics of each asset class. After all, OTC derivatives such as CDS or IRS are not traded anywhere near as frequently as equities or certain exchange-traded futures.

"If a buy-side institution wants to execute a large block of a traditional OTC instrument, they have real concerns if the regulations require that order to be broadly disseminated to the market because then they can be disadvantaged by price movements against them. People from both sides of the street are discussing the appropriate parameters for pre-trade transparency. Although the right level of transparency is generally positive for the markets, the key question is where these parameters should be set so that transparency is not damaging to liquidity."

European Venues Reshape Offerings Amid Regulatory Doubts The Trade, Dec 7, 2011

European trading platform operators are now starting to define their MiFID II and Dodd-Frank-compliant venue offerings but gaps in the two rulebooks are causing uncertainty for those wanting to service both American and European markets.

Jim Rucker, credit and risk officer at fixed income market operator MarketAxess, believed the rules handed down from Washington seemed more prescriptive than the principles-based approach taken by Brussels.

"In the US, the regulators require specific trading protocols for execution, whereas there is nothing like that level of detail in MiFID II," Rucker said.

"Currently we are an MTF in Europe and imagine that we would remain an MTF, but there are similarities and differences between the two regimes [MTFs and SEFs] that need to be considered," said Rucker. "Our aim will be to operate our credit default swap trading platform on a global basis with the same or similar experience for American and European customers."

Good Intentions, Bad Results in Europe? Securities Technology Monitor, December 2, 2011

"Pre-trade transparency requirements should be tailored to the liquidity of the asset class," said Jim Rucker, credit and risk officer at MarketAxess, which trades 23,000 European corporate bonds on its electronic platform. "Corporate bonds, for instance, trade much less frequently than other asset classes, such as equities and an overly prescriptive regime requiring publication of pre-trade data on a continuous basis in less actively traded markets is likely to reduce liquidity."

Rucker's concerns also apply to reporting on executed orders – otherwise known as post-trade transparency. The European Commission "needs to include a mechanism that prevents trades that might have market impact from being immediately disseminated with full trade details," he said. "Those trades should be subject to delayed reporting or publication without disclosing trade size."

New Trading Landscape Emerges in Europe Markets Media, November 15, 2011

"Clarification is required on the likely differences between MTFs and OTFs in Europe, and SEFs in the U.S. under Dodd-Frank," said Richard McVey, CEO of MarketAxess. Operators of SEFs believe that customers should be given the choice of how they want trades to be executed, including the ability to negotiate and execute block trades without having to interact with resting orders.

"In less liquid markets, request for quote (RFQ) provides the most competitive pricing," McVey said. "The majority of the CDS market today is not large or liquid enough to support central limit order book trading."

Given the range of liquidity across the CDS market, MarketAxess offers clients a choice in protocols for trading CDS. MarketAxess Click-to-Trade trading protocol provides live, executable markets for a broad range of corporate bonds and CDS.

Clearing and Counterparty Regulations Pose Technology Conundrum Waters Technology, November 11, 2011

The Markets in Financial Instrument Directive review (Mifid II), proposed by the European Commission over the last few weeks, has promised to reform derivatives trading on the Continent. So too has the Dodd-Frank Act in the US, which contains similar prescriptions for the clearing and execution of these instruments. At a roundtable event held in the City of London recently by MarketAxess, participants debated what level of effect this will have on the technology strategy of firms looking to remain relevant in this new regulatory regime.

"Technology is the key," said Will Rhode, senior analyst at the TABB Group. "Everyone's spending on technology, but the top-tier guys are all spending $100 million north, each, per year on OTC, regulatory reform, and all of the associated groups, because they see that it's critical that they're the ones at the cutting edge of owning financial markets technology. Whether that comes through in self-aggregation, or how they roll out the single-dealer portals, or their client-clearing services, all of these things, they're going to spend some money on. But at the moment, they're carrying the can for the cost of that, and there's not the demand that they would like. Their approach is that they have to be there, they have to be relevant, and given that trading is going to be so predicated on the notion of clearing, they should be capable of clearing in order to remain relevant from a trading perspective."

Others question the necessity of creating these venues and forcing swaps to conform to transparency procedures evident in other asset classes, such as equities. "This is a market that does not have continuous trading today," said Rick McVey, CEO at MarketAxess. "It does not look like an exchange-traded environment. When I really broke this down with the Securities and Exchange Commission (SEC) last Thursday, I said that this is not the New York Stock Exchange or the Chicago Mercantile Exchange.

SEF Operators Eager to Cross the Finish Line Waters Technology, October 25, 2011

Most of the technology needed to operate a SEF—the connectivity and clearing capabilities—are already in play and have been for a while.

"The trading technology in the industry is ready today," says McVey. "Many of us already have critical mass in terms of connectivity, networks and the client–dealer space. We have 900 institutional firms on MarketAxess and about 80 dealers."

"We don't know what the rules will be in terms of the extent and scope of the compliance and surveillance, but we know that we need to have a market-surveillance system," says Jim Rucker, credit and risk officer at MarketAxess.

Regulatory Arbitrage Fears Surround MiFID II Markets Media, October 21, 2011

"The MiFID rules published today provide some additional clarity in a number of areas including those regarding derivatives execution venues, including Regulated Markets, MTFs and OTFs, as well as post-trade reporting requirements," Jim Rucker, operations, credit and risk officer at MarketAxess, told Markets Media.

"However there are still many detailed questions outstanding which, depending on their resolution, create the risk of regulatory arbitrage between the EU and U.S. rules," said Rucker.

SEFs Defend Block Trades Markets Media, October 4, 2011

MarketAxess earlier this year launched an enhanced institutional credit trading system that includes significant additional functionality for credit default swap (CDS) trading. With this release, MarketAxess has much of the core trading technology that complies with the proposed rules and allows clients maximum flexibility in how they wish to trade CDS – both indexes and single-names.

DERIVATIVES: 15-second swaps rule is not workable International Financing Review, October 3, 2011

"The liquidity gathers around one or two market leaders," noted MarketAxess' McVey. "Once a trading system has proven technology that makes trading more efficient with quality pricing and adequate liquidity providers, the marketplace does move toward that system and I would expect there would be significant differentiation between SEFs."

Five Minutes with Jim Rucker, Credit and Risk Officer, MarketAxess MarketsWiki, September 22, 2011

Q: What are your views on the potential for regulatory arbitrage between the U.S. and European regulations?

A: The current draft of MiFID II is significantly broader in the definition of firms that can trade derivatives in comparison to US regulation for SEFs and exchanges. Europe has yet to finalize this definition but if the number of firms allowed to trade derivatives is greater in Europe than in the US, this could lead to regulatory arbitrage. Additionally, it is not yet clear if derivatives trading will take place on a multilateral trading facilities (MTFs) or on an all-encompassing set of trading venues in the category of organized trading facilities (OTFs).

MiFID II Sets Off OTC Concerns Markets Media, September 16, 2011

Regulated markets in Europe say that broker-owned OTC platforms should be regulated as MTFs. Operators of exchanges for trading OTC derivatives are worried that the regulations on Markets in Financial Instruments Directive (MIFID II) will foment regulatory arbitrage between the United States and Europe because of its less restrictive nature. "We have serious concerns that the introduction of organized trading facilities (OTFs) may create divergent regulatory regimes for derivatives trading in Europe and the U.S., which could lead to regulatory arbitrage," Jim Rucker, credit and risk office at MarketAxess, told Markets Media.

CFTC's Gensler Sets Timeline for Final Derivatives Rules Jamila Trindle, Dow Jones, 8 September 2011

In his opening statement at a meeting of the CFTC, Gensler gave the most complete outline yet of which rules the commission is likely to consider this year and which rules aren't likely to come up until next year. Rick McVey, chairman and chief executive of MarketAxess Holdings Inc. that is working on a new swaps trading platform, said he was disappointed that the rules won't be clear until next year, but he doesn't want them to rush. "It is far more important to get the rules right than it is to worry about a three-month delay. If the additional time is used to have thoughtful and effective clearing and trading rules and a coordinated approach between the SEC and the CFTC, then it will be time well spent," said McVey.

Unlike Banks, This Wall St. Group Embraces Dodd-Frank Ben Protess, New York Times, August 29, 2011

"Most of what we're doing is preparing for the future," said Richard M. McVey, chief executive of MarketAxess, which plans to become a swap execution facility.

Although the term SEF first appeared in Dodd-Frank, electronic derivatives marketplaces have existed for several years. Some $600 billion worth of derivatives trade privately on these platforms — through the phone or online. The rest are bought and sold on regulated exchanges owned by stalwarts like the CME Group.

Jumping the Gun Kristina West, Best Execution, July 2011

Jim Rucker, credit and risk officer at MarketAxess, believes that the market as a whole could benefit from the push onto electronic execution venues, and other known parts of the regulation. "There will be a more robust market and, we expect, increased liquidity and volumes. We have seen this with other asset classes when electronic trading gained momentum. Over time, there is likely to be a broader scope of participants in the market in particular as a result of the clearing mandate – it is taking out counterparty risk."

Industry Welcomes OTC Reform Deadline Change Brian Bollen, FTfm, 31 July 2011

The breathing space afforded the investment management industry by the decision to postpone the implementation of the US's Dodd Frank reforms has been broadly welcomed by the industry. Not least by the buyside, which faced the near impossible task of readying itself to comply with regulations the details of which remain as yet undecided…And the lack of readiness elsewhere is entirely defensible, according to Rick McVey, chairman and chief executive of MarketAxess. "We don't have the final rules from the US, and Europe is even further behind," he observes. "Until they know what the rules are it's a bit of a moving target."

OTC Platforms Prepare for FinReg MarketsMedia Online, 19 July 2011

MarketAxess has boosted its platform for trading credit-default swaps with live, streaming prices from multiple dealers, as well as request for quote (RFQ) for index and single names. With these and other enhancements, MarketAxess now has much of the core technology needed to meet the anticipated regulatory requirements for registration as a swap execution facility (SEF) and security-based swap execution facility (SB SEF) under the Dodd-Frank Act in the U.S. "The MarketAxess platform has been able to support CDS trading for some time," Jim Rucker, credit and risk officer at MarketAxess, told Markets Media. "However, we have significantly enhanced functionality for CDS, driven primarily by the anticipated regulatory requirements under Dodd-Frank."

MarketAxess Announces CDS Trading System Enhancements CreditFlux, 12 July 2011

MarketAxess…announced the launch of an institutional credit trading system that it says includes significant additional functionality for credit default swap trading. With this release, MarketAxess believes it now has much of the core technology needed to meet the anticipated regulatory requirements for registration as a swap execution facility (SEF) and security-based swap execution facility (SB SEF) under the Dodd-Frank Act in the US.

MarketAxess Ramps Up CDS Support Sitanta Mathghamhna, Sell-Side Technology/Buy-Side Technology, 12 July 2011

Global electronic credit trading venue MarketAxess has launched an enhanced institutional credit trading system…The new platform provides live, streaming prices from multiple dealers for active contracts as well as requests for quotes (RFQs) for index and single names; increased pre-trade price transparency, and ability to designate clearinghouses and clearing members; as well as additional trading functionality to accommodate CDS single-name and index switches and rolls."

MarketAxess launches CDS trading platform Automated Trader, 12 July 2011

Rick McVey, Chairman and CEO of MarketAxess said, "We have actively participated in the regulatory process and have worked closely with our dealer and institutional investor clients to develop trading technology that complies with the proposed rules and allows clients maximum flexibility in how they wish to trade CDS - both indexes and single-names. We are also closely following the evolution of the European regulations to ensure we can address those requirements as they are further established."

MarketAxess CEO: Dodd-Frank Delays Shouldn't Change Preparations Jeanene Timberlake, Wall Street Letter, 20 June 2011

Rick McVey, Chairman and CEO of MarketAxess said, "We have actively participated in the regulatory process and have worked closely with our dealer and institutional investor clients to develop trading technology that complies with the proposed rules and allows clients maximum flexibility in how they wish to trade CDS - both indexes and single-names. We are also closely following the evolution of the European regulations to ensure we can address those requirements as they are further established."

SIFMA Tech 2011: Getting the Market to Decide on Swap Facilities Chris Kentouris, Securities Technology Monitor, 15 June 2011

"We favor choice," said Richard McVey, chairman and chief executive of MarketAxess, an electronic trading platform for corporate bonds and other fixed-income instruments. "As many of the comment letters to the Commodity Futures Trading Commission indicated, a central limit order book should not be mandated and there are plenty of benefits to a request for quote model which relies on a single dealer. Both can coexist."

Proposed Regulations for SEFs Could Crimp Liquidity Gregory Taggart, Institutional Investor, 7 June 2011

Because institutional investors are obliged to seek best execution for their clients, they should be able to choose how many dealers they want to seek bids from, explains Rick McVey, chairman and CEO of New York-based MarketAxess Holdings, which also plans to register as a SEF. "Oftentimes for large transactions, the best way to achieve that is to go to just one dealer," McVey says.

Dealers Weigh SEF Strategies Duncan Wood, Risk Magazine, June 2011

"We've been successful in aggregating a total of 80 dealer market-makers that are active on our system. Once you get to 80, there's not much left to aggregate. We think of ourselves as a super-SEF already for credit," says Richard McVey, chief executive of MarketAxess.

Uncertainty Aside, Dodd-Frank Driving Fixed Income Tech Marine Cole, TabbFORUM, 31 May 2011

The fixed income technology industry has been changing rapidly and significantly since the financial crisis, and the ball is just getting rolling. The over-the-counter derivatives market is about to see the most dramatic overhaul.

"If the rules go through as proposed, the derivatives market is going to change dramatically," said Rick McVey, chief executive of MarketAxess, which provides an electronic credit trading platform. "We're certainly ready and we expect to be one of the first to register as a swap execution facility."

FT Trading Room video interview: Rules Dichotomy delays SEFs Jeremy Grant, Financial Times, 13 May 2011

"The SEC and CFTC rule proposals for swap execution facilities are actually quite different, and we and others have been trying to influence them to converge those rule sets so that our clients have flexibility and choice in the trading protocols that they use and one common set of rules whether they're trading in CDS index or CDS single names," says McVey.

1. How will the Dodd-Frank Act change the CDS market in the U.S.?

Among the most significant provisions of the derivatives section of the Act are:
(1) mandatory clearing, through regulated central clearing organizations, of all swaps that the CFTC or the SEC has determined should be cleared ("clearable swaps");
(2) mandatory trading of clearable swaps on a board of trade designated as a contract market or a securities exchange or through a "swap execution facility" or SEF (in each case, subject to certain key exceptions) and;
(3) reporting of swap information to swap data repositories.

2. When will the new rules for the trading of CDS take effect in the U.S.?

According to the current CFTC rule schedule, the SEF rules should be finalized during the first half of 2012, and regulators have indicated that the implementation period will be throughout 2012. Despite some continued uncertainty around the exact regulatory timeline, MarketAxess and its clients are working to develop the infrastructure necessary to trade CDS.

3. What steps has MarketAxess taken to prepare for implementation of the Dodd-Frank Act?

First, MarketAxess has participated in several regulatory roundtables and a number of other meetings with both regulators and legislators, sharing our experiences in electronic trading for OTC markets and our views regarding appropriate rules for derivatives clearing, trading and price reporting. We have also submitted extensive written comments on proposed rules to the CFTC and SEC.

Second, we are fully engaged with market participants, including buy- and sell-side customers, affirmation hubs, and central clearing organizations, to prepare for these changes. This is evidenced by the multiple client-to-dealer CDS trades that have already been executed on our platform. In response to the anticipated requirements of Dodd-Frank, the MarketAxess platform now offers streaming, executable prices for CDS from multiple dealers, alongside our proprietary RFQ trading protocol.

4. What is a SEF?

The Dodd-Frank Act defines a SEF or 'swap execution facility' as a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in the facility or system. The CFTC and the SEC have each proposed a detailed set of rules regarding the organization, administration and operation of SEFs. (The CFTC has jurisdiction over CDS indices, while the SEC regulates the trading of single-name CDS.)

5. What percentage of the market do you believe will trade electronically?

The potential size of the market will depend on how the regulators define which swaps are standard and must be cleared through one of the clearing institutions. Based on DTCC trade warehouse and other publicly available data, MarketAxess estimates that the current total average daily trading volume in the global client-to-dealer CDS market is between $40 and $50 billion in notional value, including indices and single-name CDS. Our current expectation is that at least 75% of the daily CDS trading volume will represent clearable swaps that will have to be traded on an exchange or through a SEF according to the Dodd-Frank Act as currently proposed.

6. Is any of the CDS market likely to migrate to exchange trading?

Much like the cash market in credit instruments, liquidity in CDS can be thin and discontinuous for a number of structural reasons. Although we expect the most actively traded index products to be fairly liquid in the context of the market, most of the single-name CDS and many of the less actively traded indices will be substantially less so. We believe the trading protocols available on MarketAxess, including our sophisticated RFQ capabilities that are tailored to less liquid markets, are more suited than a 'central limit order book' (CLOB) or exchange model to the type of trading typically done in CDS. That said, given the range of liquidity across the CDS market, we intend to offer clients a choice in protocols available for trading CDS.

7. What will be your relationship with the clearing organizations?

As an independently-owned SEF, we anticipate connecting to the clearing organizations to deliver trades executed on our platform to the clearing organization of the counterparty's choice. As the regulatory rulemaking evolves, we will continue to work actively with all industry participants to best understand and address the needs of the market.

8. What are MarketAxess' capabilities in CDS?

We provide a comprehensive suite of CDS trading capabilities. MarketAxess offers institutional investors a single trading platform with easy access to multi-dealer competitive CDS pricing. The streamlined RFQ trading protocol gives investors live, executable levels in both index and single-name CDS. Investors can also trade baskets of CDS single-names using our patented list trading protocol, which is a proven efficiency tool. In addition, we offer live, 'streaming markets' for CDS indices in both the U.S. and Europe, including U.S. high grade and high yield indices (CDX), as well as European indices (iTraxx).

Our straight-through processing, post-trade feeds and reporting capabilities can deliver significant operational efficiencies to CDS market participants. We also plan to augment our superior trade execution capability with robust pre-trade CDS analytics featuring Markit intraday index pricing.

9. Will there be a TRACE-like data source for CDS?

In the U.S., the Dodd-Frank Act mandates that both cleared and uncleared swaps be reported to a registered swap data repository, and the CFTC and SEC have proposed rules for real-time public data reporting of swap transactions, including price and volume. As a result, we expect that there will be a greater level of transparency, both pre- and post-trade, in the CDS markets than has existed to this point.

1. What is MiFID II and how will it impact electronic trading?

MiFID II is the review of the Markets in Financial Instruments Directive, which seeks to create a single and competitive market in financial services across all EU member states. The European Commission regards the current revision of MiFID as a major part of the continuing structural reforms it considers are needed following the global financial crisis.

MiFID II proposes to include requirements for 'best execution' which relate to the content and format of data, as well as frequency of data publication, and as such would encourage more widespread use of electronic trading venues across a broad range of products. In addition, as currently proposed, MiFID II seeks to establish a consolidated trade tape for Europe, which would bring additional transparency to the markets.

2. What is the timetable for MiFID II?

Between December 2010 and February 2011 the European Commission (EC) held a consultation on MiFID II, to which they received 4,200 responses. Following the consultation, the EC presented its draft of MiFID II and MiFIR (the Markets in Financial Instruments Regulation) in October 2011. The text contained in the proposals will be submitted to the European Parliament and the European Council, and it is likely to be at least mid- to late-2012 before MiFID II is adopted. Once it is adopted, EU member states will then be required to implement MiFID II's provisions into their own national laws. Under EU law, member states are generally permitted to take up to two years to adopt such laws after the adoption of a directive.

3. What is the difference between MiFID II and MiFIR?

The MiFID proposal is now split in two – a Regulation and a Directive. Under the Regulation (MiFIR), which includes, among other things, provisions on pre- and post-trade transparency, there will no longer be any scope for interpretation at the national level, which will ensure consistent application of the rules across Europe. MiFIR will become law in each EU member state upon adoption by the European Parliament and the European Council.

The Directive (MiFID II) deals with rules on transaction reporting and through which mechanisms trade data should be reported. As noted above, MiFID II's proposals will require implementing legislation in an EU member state before it becomes law.

4. What steps has MarketAxess taken to prepare for implementation of MiFID II and MiFIR?

MarketAxess has been actively engaged in the ongoing regulatory reform agenda with European policy makers. We have hosted roundtables with policy makers and submitted our thoughts and feedback on the proposals. We have also shared our extensive experience of electronic trading in the OTC markets with those responsible for drafting the regulation.

5. What is an OTF?

The European Commission's consultation proposed a new regulatory category of trading venue – "organized trading facilities" (OTFs) – in order to capture any facility or system that brings together buying and selling interests that was not caught by one of the original MiFID's existing venue classifications.

As currently understood, OTFs would include both bilateral and multilateral systems, capturing all types of organized execution and trading arrangements not covered by regulated markets or MTFs (multilateral trading facilities). This includes broker crossing systems and electronic platforms for the trading of OTC derivatives.

OTF operators under MiFID II/MiFIR should be neutral and may not execute any transactions against their own capital, but they will have discretion over how a transaction will be executed and may restrict access to clients with which they do not want to trade. Under this definition, OTFs could include single-dealer platforms. In this respect OTFs differ from SEFs, as it does not appear that the SEF rules will permit single dealer platforms.

6. What is an MTF?

A Multilateral Trading Facility (MTF) is a type of trading venue that is operated by an investment firm or market operator, bringing together multiple third-party buying and selling interests in financial instruments in a non-discriminatory way. An MTF may not reject particular members or participants.

7. Is there likely to be a consolidated trade tape in Europe as a result of these regulations?

The European Commission considers that transparency of market data is crucial. The EC set out proposals within its consultation regarding the scope of transaction reporting, the content of transaction reports and the mechanisms for making transaction reports.

The EC's consultation suggested three options for entities dealing with the collection and publication of trading data. Option A proposed a mandated consolidated tape, similar to the model used in the U.S. (FINRA's TRACE), which is operated by a single, non-profit-seeking entity. Option B suggested the establishment of a commercial consolidated tape, operated by a single commercial entity. Option C would allow competing commercial providers to provide a consolidated tape as long as they comply with certain conditions.

The MiFID II/MiFIR proposals call for a tape that is operated by one or more commercial entities; however the details of how that tape should be operated have not yet been defined and will be left to be finalized by ESMA, the European Securities and Markets Authority.

8. What percentage of the market do you believe will trade electronically?

The potential size of the market will depend on how the regulators define which swaps are standard and must be cleared through one of the clearing institutions. Based on DTCC trade warehouse and other publicly available data, MarketAxess estimates that the current total average daily trading volume in the global client-to-dealer CDS market is between $40 and $50 billion in notional value, including indices and single-name CDS. Our current expectation is that at least 75% of the daily CDS trading volume in the U.S. will represent clearable swaps that will have to be traded on an exchange or through a SEF according to the Dodd-Frank Act as currently proposed.

9. Is any of the CDS market likely to migrate to exchange trading?

Much like the cash market in credit instruments, liquidity in CDS can be thin and discontinuous for a number of structural reasons. Although we expect the most actively traded index products to be fairly liquid in the context of the market, most of the single-name CDS and many of the less actively traded indices will be substantially less so. We believe the trading protocols available on MarketAxess, including our sophisticated RFQ capabilities that are tailored to less liquid markets, are more suited than a 'central limit order book' (CLOB) or exchange model to the type of trading typically done in CDS. That said, given the range of liquidity across the CDS market, we intend to offer clients a choice in protocols available for trading CDS.

10. What will be your relationship with the clearing organizations?

As an independently-owned MTF, we anticipate connecting to the clearing organizations to deliver trades executed on our platform to the clearing organization of the counterparty's choice. As the regulatory rulemaking evolves, we will continue to work actively with all industry participants to best understand and address the needs of the market.

11. What are MarketAxess' capabilities in CDS?

We provide a comprehensive suite of CDS trading capabilities. MarketAxess offers institutional investors a single trading platform with easy access to multi-dealer competitive CDS pricing. The streamlined RFQ trading protocol gives investors live, executable levels in both index and single-name CDS. Investors can also trade baskets of CDS single-names using our patented list trading protocol, which is a proven efficiency tool. In addition, we offer live, 'streaming markets' for CDS indices in both the U.S. and Europe, including U.S. high grade and high yield indices (CDX), as well as European indices (iTraxx).

Our straight-through processing, post-trade feeds and reporting capabilities can deliver significant operational efficiencies to CDS market participants. We also plan to augment our superior trade execution capability with robust pre-trade CDS analytics featuring Markit intraday index pricing.