CME Applies to Create Commodities Swap Execution Facility

CME Group Inc. (CME), the owner of the world’s largest futures market, applied to create a new kind of venue known as a swap execution facility that will initially focus on trading commodities derivatives.

The Chicago-based exchange operator said today that it’s seeking U.S. Commodity Futures Trading Commission permission to form the market. Other companies that have asked for or received approval to create one include IntercontinentalExchange Inc. (ICE), ICAP Plc (IAP), Tradeweb Markets LLC, GFI Group Inc. (GFIG) and Bloomberg News parent Bloomberg LP, according to the CFTC website.

The Dodd-Frank Act of 2010 included provisions designed to shift the swaps market, which helped fuel the 2008 credit crisis, from largely unregulated transactions negotiated off exchanges to more transparent trading done on systems including SEFs, which are overseen by the CFTC and U.S. Securities and Exchange Commission. CME is seeking to tap into the market after the CFTC completed rules for SEFs in May, opening up competition for trades in the $633 trillion over-the-counter derivatives market.

The requirement that swaps trade on SEFs becomes effective on Oct. 2. The CFTC has so far approved applications from Bloomberg, Tradeweb, GFI, MarketAxess Holdings Inc. (MKTX) and State Street Corp. (STT) to operate the markets, according to the regulator’s website.

Before trading can start on a SEF, the operator must submit a request to the CFTC for the specific swaps it wants to offer, known as a made-available-to-trade application. That process may take up to 90 days to receive CFTC approval.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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