SEF 101

Memo: Do SEFs charge Fees?


Memo: Do SEFs charge Fees?

We’ve received inquiries asking if swap execution facilities (“SEFs”) can chargefees. Like any business, a SEF is free to charge fees for the services it provides. It iscommon for SEFs (as it is for exchanges) to charge fees to generate revenues tocover their operating costs[1] and seek to earn profits. As a general matter, a SEF isrequired by the CFTC to have comparable fee structures for participants receivingcomparable access to the SEF or comparable services from the SEF. Subject to thisgeneral standard, SEFs have discretion to decide on the types and amounts of feesthey charge.

SEF fees are an important factor to consider (among others) when evaluating theadvantages and disadvantages of executing a swap transaction on a SEF orbilaterally away from any SEF. We have seen one new SEF with a current pricingmodel that imposes fees only on the dealer side, in the forms of monthly platformuser fees, and per trade (transaction) fees that vary depending on the notional sizeof a transaction.[2] We expect those fees will get priced by the dealer side into thetransaction prices that other counterparties negotiate over the SEF with them.

If a SEF has an affiliate that provides professional CTA services to clients withrespect to swaps, it seems fair to consider whether the affiliation creates a conflictof interest for the CTA to favor executing a client’s swap transaction on theaffiliated SEF in lieu of executing the transaction on another available SEF ornegotiating the transaction away from any SEF through other permissible means.

It is very much the opinion of Mobius that the process of transaction support thatmay (if appropriate and meeting client bespoke capital objectives) result in a hedgetransaction is very much unique to each client’s needs, market conditions, and therole and abilities of their banking and hedging counterparties.

[1] A SEF is generally required by the CFTC to have financial resources that exceedthe total amount that the SEF needs to cover its operating costs for a one-yearperiod, calculated on a rolling basis.
[2] The SEF’s fee schedule also sets out a transaction fee that a dealer would payfor a transaction executed away from the SEF, and which is higher than the on-SEFtransaction fee. We are unclear on the basis for charging such a fee butpresumably that would be linked to bringing the transaction to the SEF forconfirmation or post-trade processing.

Contact Us

Should you require additional information or have inquiries please contact: Casey Ragsdale, President, Paul Smith, Chief Risk Officer, Phil Thompson, Vice President and Co-Head, Commodities Risk,