SEF 101

SEF Trading: Setting the Record Straight


SEF Trading: Setting the Record Straight

We are alarmed by what appears to be a deliberate effort by some to spread confusionsuggesting that clients of commodity trading advisors (“CTAs”) who receive swapsadvice must enter into their swap transactions on a type of regulated trading platformcalled a swap execution facility (“SEF”). Let’s set the record straight.

CTAs such as Mobius may provide advice to their clients on the use of swaps, whetheras part of a hedging strategy or an investment strategy. Incidental to providing thatadvice, a CTA may assist its clients in executing their swap transactions to implementtheir strategies, as we do at Mobius.

A CTA is not automatically a SEF because it provides these services. Citing the CFTCStaff Advisory issued last September to suggest otherwise is, in our view, egregiouslymisleading. CTAs that provide advisory and related execution services for swapsshould, of course, carefully evaluate the circumstances of their own operations, as wehave at Mobius, to decide if they should register as a SEF. That is the overall messageof the Advisory.1

More to the point, a person is not obligated to execute its swap transactions on a SEFsimply because it receives swaps advice from a CTA. Yes, certain swaps may have tobe executed on or subject to the rules of a SEF, but that requirement applies only tocertain types of interest rate and credit default swaps. For other swaps, a person is freeto choose whether to enter into transactions over a SEF or through some otherpermissible means, weighing the pros and cons of each choice. At Mobius, we help ourclients evaluate their different trading and market choices based on their uniquebusiness needs.

For additional information or inquiries please contact:
Paul Smith, Chief Risk Officer,
Phil Thompson, Vice President and Co-Head, Commodities Risk,

If clients have questions about whether their CTA is executing trades in a manner that requires SEF registration, theyshould talk to the CTA or consult with their counsel, but please don’t jump to conclusions.