RESPONSE TO CONSULTATION PAPER
Please note that all submissions received will be published and attributed to therespective respondents unless they expressly request MAS not to do so. As such, if
respondents would like (i) their whole submission or part of it, or (ii) their identity, orboth, to be kept confidential, please expressly state so in the submission to MAS. In
addition, MAS reserves the right not to publish any submission received where MAS
considers it not in the public interest to do so, such as where the submission appears
to be libellous or offensive.
Consultation topic:

Consultation Paper on Draft Regulations for
Mandatory Trading of Derivatives Contracts

Name1/Organisation:

Citadel1

if responding in a personal
capacity
Contact number for any Stephen Berger, Managing Director, Government &Regulatory Policy (+1 646 403 8235)
clarifications:
Email address
clarifications:for

any Stephen.Berger@citadel.com
Confidentiality

I wish to keep the following N/A
confidential:(Please indicate any parts of your submission you
would like to be kept confidential, or if you would likeyour identity to be kept confidential. Your contact
information will not be published.)1General comments:
Citadel 1 appreciates the opportunity to provide comments to the Monetary Authority ofSingapore (“MAS”) on its Consultation Paper on Draft Regulations for Mandatory Tradingof Derivatives Contracts.
Citadel is a firm supporter of the G20 reforms to the OTC derivatives markets, including
the clearing, trading, and reporting requirements. The ongoing implementation of thesereforms has already begun, and will continue, to reduce systemic risk, improve pre- andpost-trade transparency, and foster an open, level, and competitive playing field. The
mandatory trading of derivatives on regulated platforms is a central component of the G20
reforms, 2 and is critical to achieving the policy goals of promoting market stability andintegrity and improving conditions for investors through increased transparency, morecompetition, and better pricing. Market experience with the implementation of the trading
obligation in other jurisdictions has demonstrated the tangible benefits to investors that
result from open and competitive execution, including better liquidity and lower transaction
costs. Specifically, the Bank of England has found that market participants transacting
USD interest rate swaps (“IRS”) are already saving as much as $20 million - $40 million
per day, of which $7 million - $13 million is being saved by market end-users alone perday, due to lower transaction costs resulting from the implementation of the trading
obligation in the US. 3 Furthermore, transitioning trading in standardised, liquid OTC
derivatives onto regulated platforms enhances market stability and integrity by ensuring
this activity is subject to appropriate monitoring and surveillance.
An affirmative trading obligation is necessary to facilitate the industry’s transition to
trading on regulated trading venues. It is therefore critical that the scope of the trading
obligation be appropriately calibrated to (i) include all OTC derivatives that are sufficiently
standardised and liquid, and (ii) encompass a broad range of market participants operatingin the market. Below, we provide our feedback on the MAS proposal.

1

Citadel is a global financial firm built around world-class talent, sound risk management, and innovative
market-leading technology. For more than a quarter of a century, Citadel’s hedge funds and capital markets
platforms have delivered meaningful and measurable results to top-tier investors and clients around theworld. Citadel operates in all major asset classes and financial markets, with offices in the world’s leading
financial centers, including Chicago, New York, San Francisco, Boston, London, Dublin, Hong Kong, andShanghai.
2
See “G20 Leaders Statement: The Pittsburgh Summit,” Sept. 25, 2009, available at:
http://www.g20.utoronto.ca/2009/2009communique0925.html (“All standardized OTC derivative contracts
should be traded on exchanges or electronic trading platforms, where appropriate, and cleared throughcentral counterparties by end-2012 at the latest”).
3
See Staff Working Paper No. 580 “Centralized trading, transparency and interest rate swap market
liquidity: evidence from the implementation of the Dodd-Frank Act”, Bank of England (January 2016),
available at: http://www.bankofengland.co.uk/research/Documents/workingpapers/2016/swp580.pdf.

2

Question 1: MAS seeks views on the proposal to subject IRS denominated in USD,
EUR and GBP, with the contract specifications set out in Table 1, to trading
obligations.
We agree that all of the IRS proposed in the Consultation Paper are suitable for the trading
obligation pursuant to the criteria set forth in section 129N(2) of the Securities and Futures
Act (“SFA”), including the level of standardisation and liquidity and whether the
instruments are subject to a trading obligation in other jurisdictions.
However, we believe the scope of the trading obligation should be expanded in two
important ways:
1. Additional benchmark tenors in USD, EUR, and GBP IRS meet the criteria set
forth in section 129N(2) of the SFA
An analysis of market liquidity demonstrates that material trading volumes are
occurring in other benchmark tenors, in particular:
USD IRS: 4, 6, 12, 15, 20, and 30 year
EUR IRS: 4, 6, 15, 20, and 30 year
GBP IRS: 4, 6, 15, 20, and 30 year
USD, EUR, and GBP-denominated IRS are traded in global liquidity pools that are notdefined by geographical boundaries. A holistic assessment of the liquidity available toa market participant in Singapore, taking into account factors such as the number ofliquidity providers regularly offering quotes, average daily volume, average size of
trades, and number and type of active market participants, would show that additional
benchmark tenors in USD, EUR, and GBP IRS are sufficiently liquid to be subject to a
trading obligation.
Expanding the scope of the trading obligation to include additional benchmark tenors
would also be consistent with approaches taken in other jurisdictions. The US and EU
have applied the trading obligation to a nearly identical set of OTC derivatives,
including the benchmark tenors listed above. 4 As highlighted by MAS in theConsultation Paper, a significant level of OTC derivatives trading activity in Singapore
involves US and EU counterparties that are already subject to these trading obligations.
Therefore, expanding the proposed scope of the trading obligation to increase
harmonisation with the US and EU and more accurately reflect market liquidity
dynamics should not create significant implementation burdens for the industry. In
addition, greater harmonisation may assist in efforts to achieve equivalence
determinations with other jurisdictions.

4

See list of instruments subject to the US trading obligation at
http://www.cftc.gov/idc/groups/public/@otherif/documents/file/swapsmadeavailablechart.pdf and list of
instruments subject to the EU trading obligation at https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32017R2417&from=EN.

3

2. Standardised and liquid packages should not be granted an exemption from thetrading obligation
Over 50% of benchmark USD IRS are executed as part of package transactions. 5 It istherefore critical that standardised and liquid packages are not exempted from thetrading obligation, as otherwise a very significant portion of the market will nottransition onto regulated trading platforms, undermining the G20 reforms.
Both the US and EU have successfully applied the clearing obligation and the trading
obligation to packages:•

Clearing Obligation. In both the US and EU, an OTC derivative subject to aclearing obligation must be cleared even if a market participant executes it as partof a package transaction along with other instruments. Note that this does not meanthat all components of the package must be cleared, only that the components of the
package that are independently subject to the clearing obligation must be cleared.
There are no package transaction related exemptions from the clearing obligationin either jurisdiction.

•

Trading Obligation. In both the US and EU, similar to the clearing obligation, thegeneral rule is that an OTC derivative subject to a trading obligation must be
executed on a regulated platform even if a market participant executes it as part ofa package transaction along with other instruments.
In both jurisdictions, certain targeted exemptions have been provided from thetrading obligation for specific types of packages. 6 However, it is important to notethat exemptions have not been provided to the most liquid and standardised
packages traded by market participants. These include (a) packages with one
component subject to the trading obligation and the other components subject to theclearing obligation and (b) packages comprised of a USD IRS component subject
to the trading obligation and a US Treasury.

To the extent exemptions are considered for packages under the SFA, it is important
that, similar to the US and EU, they are appropriately tailored given the significant
amount of trading activity in certain standard, liquid packages. Packages with one
component subject to the trading obligation and the other components subject to theclearing obligation include (i) interest rate curves (2 interest rate swaps of different
maturities), (ii) interest rate butterflies (3 interest rate swaps of different maturities),

5

See “Spreadovers: US Treasury Spreads in the Swaps Data,” Clarus Financial Technology (March 23,2105), available at: https://www.clarusft.com/spreadovers-us-treasury-spreads-in-the-swaps-data/.
6
US: CFTC Letter No. 17-55 (Oct. 31, 2017), available at:
http://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/17-55.pdf.
EU: ESMA Opinion on the treatment of packages under the trading obligation for derivatives (March 21,2018), available at: https://www.esma.europa.eu/sites/default/files/library/esma70-156322_opinion_packages_and_to.pdf.

4

(iii) IMM rolls (trading out of an existing IMM swap and replacing it with the next
longest maturity), and (iv) CCP basis swaps (two or more interest rate swaps that arecleared at different CCPs). Market data shows that interest rate curves and butterflies
alone typically constitute approximately 1/3 of the total risk transfer in USD IRS andone analysis found that up to 45% of vanilla, spot starting USD IRS were traded as partof a curve or butterfly. 7 These types of packages are also extremely common for EUR
and GBP IRS.
In turn, packages comprised of a USD IRS component subject to the trading obligation
and a US Treasury (“spread over packages”) appear to be the single largest category of
package transactions involving USD IRS in terms of overall risk transfer and constitute
up to 20% of overall trade count. 8
All of the package types highlighted above already trade successfully on both US SEFs
and EU MTFs and OTFs, indicating than an exemption for these types of packages fromthe trading obligation is not necessary. Under the SFA, trading venues in Singapore
will have the flexibility to design trading protocols for package transactions and wewould expect them to innovate and compete to attract this trading activity. As a result,
we respectfully request MAS to reconsider any blanket exemption to the application of
the trading obligation to packages.
Finally, we agree with the proposal to not include a specific exemption from the trading
obligation for large block trades. Under the SFA, trading venues will have the flexibility
to offer trading protocols that allow for private negotiation of large trades in order toaddress concerns about information leakage. Similar flexibility for EU trading venues led
ESMA to conclude that an exemption from the trading obligation was not necessary forblock trades. 9 In contrast, US rules limit the permitted trading protocols that can be offeredby SEFs for instruments subject to the trading obligation. As a result, additional flexibility
was required for block trades, whereby they are exempted from the requirement to be
executed via either an RFQ-to-3 or Order Book trading protocol but are still required to be
executed pursuant to the rules of a SEF. 10

7

See “September 2016 Swaps Review,” Clarus Financial Technology (Oct. 12, 2016) at Table 2, available
at: https://www.clarusft.com/september-2016-swaps-review/; and “USD Swaps: Spreads and Butterflies
Part II,” Clarus Finan-cial Technology (Sept. 30, 2014), available at: https://www.clarusft.com/usd-swapsspreads-and-butterflies-part-ii/.
8
See “September 2016 Swaps Review,” Clarus Financial Technology (Oct. 12, 2016) at Table 2, available
at: https://www.clarusft.com/september-2016-swaps-review/; and “Spreadovers: US Treasury Spreads in
the Swaps Data,” Clarus Financial Technology (March 23, 2105), available at:https://www.clarusft.com/spreadovers-us-treasury-spreads-in-the-swaps-data/.
9
See ESMA Final Report: Draft RTS on the trading obligation for derivatives under MiFIR (Sept. 28,2017) at page 8, available at: https://www.esma.europa.eu/sites/default/files/library/esma70-156227_final_report_trading_obligation_derivatives.pdf.
10Core Principles and Other Requirements for Swap Execution Facilities (June 4, 2013), available at:
http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2013-12242a.pdf.

5

Question 2: MAS seeks views on the proposal to impose trading obligations on banks
that exceed a threshold of S$20 billion gross notional outstanding of OTC derivatives
contracts booked in Singapore for each of the last four quarters.
We appreciate the logic behind the proposed phase-in of the clearing obligation and trading
obligation, starting with the most active banks. However, in our view, it is criticallyimportant that both of these reforms are fully phased-in to apply to all of the financial
institutions covered by section 129I of the SFA, and therefore, we respectfully request MAS
to provide a full implementation timeline.
Fully implementing the clearing obligation and trading obligation for all financial
institutions is important for several reasons. First, efforts to mitigate systemic risk areundermined to the extent there are material trading volumes that are not covered by these
critical G20 reforms. Recent data suggests that “other financial institutions” now accountfor over 50% of trading activity in interest rate derivatives in Singapore, with volumes morethan tripling since 2013. 11 As a result, we recommend that MAS analyse the percentage ofdaily IRS trading volumes that would not be covered by the proposed initial implementationof the clearing and trading obligations.
Second, efforts to mitigate systemic risk and improve market integrity are underminedwhen and where significant numbers of market participants are not covered by the clearing
and trading obligations. While the trading activity and exposures of any given smaller
financial institution may not present systemic risk concerns in isolation, the sheer numberof bilateral counterparty credit exposures that persist outside of central clearing perpetuatessystemic risk in aggregate, acting as a risk transmission channel in the event of a significant
counterparty default. In addition, this trading activity will likely continue to occur on an
over-the-counter bilateral basis, away from the monitoring and surveillance performed byregulated platforms. This can undermine one of the main benefits of the trading obligation,
which is to enhance market stability and integrity by transitioning trading activity onto
well-regulated and operationally robust trading venues. 12
Third, applying the clearing and trading obligations only to large banks deprives othermarket participants, including the buy-side, of the benefits of these reforms, such asincreased transparency, more competition, and better pricing. MAS Staff Paper No. 54
accurately finds that “we consider the main beneficiaries of a trading mandate to likely bebuy-side participants (e.g. fund managers and insurers), who are generally price-takers in
OTCD markets. Increased pre-trade transparency for buy-side participants improves theirprice discovery process and reduces information asymmetry.” 13 Similarly, Bank of

11

ISDA Asia-Pacific OTC Derivatives Study (November 2017) at pages 23-24, available at:https://www.isda.org/a/jRTEE/Asia-Pacific-Derivatives-Study-November-2017.pdf.
12
See MAS Staff Paper No. 54, Liquidity and policy analyses for platform trading of OTC derivatives: A
perspective of smaller markets (December 2016), available at:
http://www.mas.gov.sg/~/media/resource/news_room/Staff%20Papers/MAS%20Staff%20Paper%20No54%20%20Liquidity%20and%20Policy%20Analyses%20for%20Platform%20Trading%20of%20OTC%20D
erivatives.pdf.
13
Id. at page 8.

6England research has found that the fully implemented US trading obligation has
meaningfully benefited end investors, reducing transaction costs by $20 million - $40
million per day, of which $7 million - $13 million is being saved by market end-users alone
per day. 14 However, the clearing and trading obligations must be generally applied to alltypes of market participants in order to realize these benefits. In the absence of the full
implementation of clearing and trading obligations, from the perspective of a buy-side
market participant, the OTC derivatives market may appear largely unchanged, with theprice discovery process opaque and fragmented and liquidity providers continuing to focus
on providing liquidity bilaterally in uncleared instruments.
For these reasons, both the US and EU have applied the clearing and trading obligations toa broad range of financial counterparties. In the US, the clearing obligation was phased-inover a 9-month period in 2013 and applied to all financial counterparties, with a narrow
exemption for credit institutions with less than $10 billion in assets. The trading obligation
was then applied in early 2014 to all counterparties subject to the clearing obligation. In
the EU, the clearing obligation was phased-in for larger financial counterparties beginningin 2016 and will be applied to smaller financial counterparties in 2019. The trading
obligation was then applied in early 2018 to all counterparties subject to the clearing
obligation.
The clearing and trading obligations are central pillars of the G20 reforms and theirsuccessful implementation is critical to achieving the policy goals of mitigating systemic
risk, promoting market stability and integrity, and improving conditions for investors
through increased transparency, more competition, and better pricing. These goals will not
be fully achieved by applying the reforms only to the inter-bank portion of the OTC
derivatives market. Therefore, we respectfully request that MAS provide further detailregarding the proposed timeline for fully implementing the clearing and trading obligations.
Question 3: MAS seeks views on the proposal to exempt public bodies from trading
obligations.
No comment.
Question 4: MAS seeks views on imposing trading obligations to products that aretraded in Singapore by both counterparties that exceed the proposed threshold of
S$20 billion gross notional outstanding of OTC derivatives contracts booked in
Singapore.
No comment.
Question 5: MAS seeks views on the proposal to exempt intra-group transactions fromtrading obligations.

14

Supra note 3.

7

No comment.
Question 6: MAS seeks views on the proposed timing for the commencement oftrading obligations in conjunction with the commencement of the SF(A) Act.
No comment.
Question 7: MAS seeks feedback on the trading facilities which market participants
may access, or intend to access, for the trading of USD, EUR and GBP IRS.
Given the proposal to initially apply the trading obligation only to transactions between thelargest banks, the relevant trading platforms will include those operated by inter-dealer
brokers (“IDBs”). For this reason, it is important that the definition of an “organised
market” in the Securities and Futures (Markets) Regulations is broad enough to include
these IDB platforms, which typically offer both voice and electronic trading protocols. We
note that IDB platforms are already registered as SEFs in the US and MTFs and OTFs in
the EU.
In addition, we agree with MAS that it is important that other market participants have theability to access these liquidity pools where OTC derivatives subject to the trading
obligation will be executed. Unfortunately, IDB platforms have historically denied accessto other market participants, such as the entire buy-side as well as potential new entrants
on the sell-side. This denial of access achieves two objectives. First, it prevents end
investors from directly accessing the competitive pricing and liquidity found on the dealeronly trading venues. Second, it makes it extremely difficult for new liquidity providers tocompete with the incumbent dealers on any trading venue, as potential new entrants areblocked from accessing necessary pools of liquidity for pricing and hedging purposes.
Typical access barriers used by these IDB platforms include (a) requiring direct clearing
membership at a CCP in order to join the trading platform, and (b) providing mechanismsthat allow platform participants to selectively “turn-off”, or otherwise restrict trading with,certain other participants (i.e. “enablement” or “credit control” mechanisms). These accessbarriers have been specifically prohibited in both the US and EU for cleared OTC
derivatives traded on SEFs and MTFs/OTFs in order to ensure that market participants areprovided with impartial and non-discriminatory access to these new regulated trading
platforms. 15
We respectfully request that MAS, as part of implementing the trading obligation, ensurethat approved exchanges (“AEs”) and recognised market operators (“RMOs”) provide

15

EU: ESMA Q&A on MiFID II and MiFIR market structure topics, Section 5.1, Question 3, available at:https://www.esma.europa.eu/sites/default/files/library/esma70-87294290138_qas_markets_structures_issues.pdf.
US: “Staff Guidance on Swap Execution Facilities Impartial Access” (Nov. 14, 2013), available at:
http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmostaffguidance111413.pdf and “Core
Principles and Other Requirements for Swap Execution Facilities”, (June 4, 2013) at page 33508, available
at: http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2013-12242a.pdf.

8

impartial and non-discriminatory access to market participants. In this regard, it may be
useful to specifically require AEs and RMOs to operate in a “non-discriminatory” mannerin the Securities and Futures (Markets) Regulations (in addition to fair, orderly, andtransparent). This will maximise harmonisation with the US and EU regulatory
frameworks and ensure the prohibition of arbitrary and discriminatory practices that could
prevent market participants in Singapore from accessing certain liquidity pools.
Question 8: MAS seeks feedback on any other considerations and timing concernsthat may affect market participants’ ability to access trading facilities for the tradingof USD, EUR and GBP IRS.
As part of implementing a trading obligation in Singapore, it will be important to establish
equivalence arrangements with other jurisdictions that also have a trading obligation. In
assessing the regulatory frameworks applied to regulated platforms in these otherjurisdictions, we highlight two areas for MAS’ consideration.
1.

Ensuring non-discriminatory access to regulated platforms

As detailed in Question 7 above, both the US and EU require regulated platforms trading
OTC derivatives to provide market participants with impartial and non-discriminatory
access. This core principle has been further clarified by both the CFTC and ESMA toprohibit specific practices that have historically been used by trading venues to deny accessto certain market participants. 16
It is therefore important that MAS ensure AEs and RMOs are subject to similar standards
and are not permitted to deny market participants in Singapore access to key liquidity pools.
2. Ensuring a robust execution-to-clearing workflow
The clearing obligation and the trading obligation are designed to mitigate systemic risk
and improve market stability and integrity by transitioning trading activity in OTC
derivatives to a safer and more transparent regime, where market participants trade on awell-regulated platform subject to monitoring and surveillance and then immediately facea CCP without having to worry about the bilateral counterparty credit risk of their original
executing counterparty.
In order to maximise these benefits, both the US and EU have successfully implemented
straight-through-processing (“STP”) requirements in connection with the clearing andtrading obligations. 17 These requirements reduce market risk, credit risk, and operational

16

Id.
US: “Staff Guidance on Swaps Straight-Through Processing” (Sept. 26, 2013), available at:
http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/stpguidance.pdf; and CFTC Letter No.
15-67 (Dec. 21, 2015), available at:
http://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/15-67.pdf.
EU: Commission Delegated Regulation (EU) 2017/582, available at: http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32017R0582&from=EN
17

9

risk by creating a robust execution-to-clearing workflow for market participants trading ona regulated platform. The main STP requirements include:(a) Submission timeframes. Each step in the operational workflow from execution toclearing must occur within a certain amount of time in order to prevent transactions
from being left in an uncertain, pending-clearing state during which the client is unsure
whether its exposure is to the CCP or to its original executing counterparty.
1) Submission to the CCP after execution. Both US and EU rules require that atransaction executed on a trading platform be submitted to the CCP no later than 10
minutes after execution. 182) Acceptance or rejection by the CCP. Both US and EU rules require that a CCP
accept or reject a transaction submitted for clearing within 10 seconds of receipt. 19(b) Pre-execution credit checks. Both US and EU rules require pre-execution credit
checks by a client’s clearing member in order to ensure that both executing
counterparties are able to successfully clear a transaction executed on a trading
platform. 20(c) Providing certainty in the event a trade is rejected from clearing. Both US and EU
rules address the rare circumstance of a trade being rejected from clearing after being
executed on a trading platform, including voiding the trade in order to prevent thereintroduction of bilateral counterparty credit risk. 21
These STP requirements have been critical in reducing systemic risk and are standard
market practice in other jurisdictions that have implemented a trading obligation.
Therefore, we respectfully request MAS to apply similar standards to AEs and RMOs inorder to increase global harmonisation and to ensure market participants in Singapore
benefit from the same operational efficiencies that are available when trading on regulated
platforms in other jurisdictions.
Question 9: MAS seeks comments on the draft SF(TDC)R in Annex B.
No comment.
Question 10: MAS seeks views on the proposal to subject IRS denominated in EUR
and GBP, with the contract specifications set out in Table 2, to clearing obligations.

18

See CFTC Letter No. 15-67 and Article 3 of Commission Delegated Regulation (EU) 2017/582.
See CFTC “Staff Guidance on Swaps Straight-Through Processing” and Articles 3 and 4 of Commission
Delegated Regulation (EU) 2017/582.
20
See CFTC “Staff Guidance on Swaps Straight-Through Processing” and Article 2 of Commission
Delegated Regulation (EU) 2017/582.
21
See CFTC “Staff Guidance on Swaps Straight-Through Processing” and Article 5 of Commission
Delegated Regulation (EU) 2017/582.
19

10

We agree that instruments subject to a trading obligation should also be covered by aclearing obligation. Therefore, we support applying the clearing obligation to both EUR
and GBP IRS, in addition to USD and SGD IRS.
However, in our view, the range of maturities covered by the clearing obligation should be
28 days to 50 years. This is consistent with the criteria set forth in section 129G(2) of the
SFA, given market liquidity in these instruments as well as available clearing offerings andthe scope of clearing obligations already implemented in other jurisdictions.
In addition, we request that MAS clarify the application of the clearing obligation to
packages. As detailed in Question 1 above, package transactions account for a significant
amount of trading activity in fixed-to-float IRS and therefore broad exemptions for
packages could undermine efforts to mitigate systemic risk through central clearing.
Following the implementation of a clearing obligation, market participants are still able toexecute both cleared and uncleared instruments together as a package, with the intendedto-be-cleared instrument then submitted to a CCP post-execution in accordance with theregulatory requirement. This approach is consistent with how both the US and EU have
implemented the clearing obligation, where no exemptions were specifically provided for
packages.
Finally, as discussed in Question 2 above, we respectfully request MAS to provide a full
implementation timeline for applying the clearing obligation to additional market
participants. A clearing obligation that only covers inter-bank activity leaves far too muchtrading activity and bilateral counterparty credit exposure outside of central clearing. In
addition to the risk mitigation and customer protection benefits of central clearing, market
research has shown that clearing also improves overall market transparency and liquidity. 22
In order for all market participants to fully realize these benefits, central clearing must be
implemented in both the dealer-to-dealer and dealer-to-customer segments of the OTC
derivatives market.

22

See Loon, Y. C., Zhong, Z. K. Does Dodd-Frank affect OTC transaction costs and liquidity? Evidence
from real-time CDS trade reports. Journal of Financial Economics, 119 (3), 645–672 (2016) at page 4,
available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2443654 (“the reduced counterparty risk
and increased post-trade transparency associated with central clearing have beneficial effects on liquidity”).

11