UNITED STATES OF AMERICA

 COMMODITY FUTURES TRADING COMMISSION

 PUBLIC ROUNDTABLE:

 THE MADE AVAILABLE TO TRADE PROCESS

 Washington, D.C.

 Wednesday, July 15, 2015
 2

 1 PARTICIPANTS:

 2 Welcome and Opening Remarks:

 3 NANCY MARKOWITZ

 Deputy Director, Division of Market Oversight

 4 U.S. Commodity Futures Trading Commission

 5 Panel 1 - Mandatory Exchange Trading Requirements

 in Various Jurisdictions:

 6

 Moderator:

 7

 ROGER SMITH

 8 Special Counsel, Division of Market Oversight

 U.S. Commodity Futures Trading Commission

 9

 Panelists:

 10

 KAZUNARI MOCHIZUKI

 11 Director for International Financial Markets

 (Settlements) Japan Financial Services Agency

 12

 NHAN NGUYEN

 13 Special Counsel, Division of Market Oversight

 U.S. Commodity Futures Trading Commission

 14

 EDWIN SCHOOLING LATTER

 15 Head of Markets Infrastructure and Policy

 U.K. Financial Conduct Authority

 16

 HEATHER SEIDEL

 17 Chief Counsel, Division of Trading and Markets

 U.S. Securities and Exchange Commission

 18

 Panel 2 - Assessing MAT: Academic Perspectives on,

 19 and Data-Based Assessment of MAT:

 20 Moderator:

 21 SAYEE SRINIVASAN

 Chief Economist

 22 U.S. Commodity Futures Trading Commission
 3

 1 PARTICIPANTS (CONT'D):

 2 Panelists:

 3 DR. DARRELL DUFFIE

 Dean Witter Distinguished Professor of Finance

 4 Graduate School of Business

 Stanford University

 5

 DR. JOHN HULL

 6 Maple Financial

 Professor of Derivatives and

 7 Risk Management

 Joseph L. Rotman School of Management

 8 University of Toronto

 9 AMIR KHWAJA

 Chief Executive Officer

 10 Clarus Financial Technology

 11 KEVIN McPARTLAND

 Principal, Greenwich Associates

 12

 Panel 3 - Industry Assessment of the MAT Process:

 13

 Moderator:

 14

 ROGER SMITH

 15 Special Counsel, Division of Market Oversight

 U.S. Commodity Futures Trading Commission

 16

 Panelists:

 17

 TOM BENISON

 18 Managing Director, Global Credit Trading and

 Syndication, J.P. Morgan

 19

 STEPHEN BERGER

 20 Director, Government and Regulatory Policy

 Citadel LLC

 21

 LISA CAVALLARI

 22 Director, Fixed Income Derivatives

 Russell Investments
 4

 1 PARTICIPANTS (CONT'D):

 2 DOUGLAS FRIEDMAN

 General Counsel, Tradeweb Markets

 3

 

 4 

 

 5

 SUNIL HIRANI

 6 Chief Executive Officer, trueEX LLC

 7 VINCENT JOHNSON

 Head of Regulatory & Policy Affairs, BP Integrated

 8 Supply and Trading

 Representing the International Swaps and

 9 Derivatives Association

 10 ARTHUR J. LEIZ

 Managing Director, Goldman Sachs Asset Management

 11

 ANGELA M. PATEL

 12 Trading Operations Manager, Fixed Income &

 Derivatives Investment Management

 13 Putnam Investments

 14 DEXTER SENFT

 Managing Director, Fixed Income Electronic Trading

 15 Morgan Stanley

 16 WILLIAM SHIELDS

 Chief Compliance Officer

 17 GFI Swaps Exchange LLC

 Representing the Wholesale Market Brokers

 18 Association

 19 RON STEINFELD

 Chief Compliance Officer, MarketAxess

 20

 WALLY SULLIVAN

 21 Chief Executive Officer, Javelin Capital Markets

 22
 5

 1 PARTICIPANTS (CONT'D):

 2 EDWARD TSAI

 Director and Counsel, Credit Suisse

 3

 Other Participants:

 4

 CHRISTOPHER GIANCARLO

 5 COMMISSIONER, U.S. Commodity Futures Trading Commission

 6 VINCENT McGONAGLE

 Director, Division of Market Oversight

U.S. Commodity Futures Trading Commission

 7

 DAVID VAN WAGNER

 8 Chief Counsel, Division of Market Oversight

 U.S. Commodity Futures Trading Commission

 9

 10

 11 * * * * *

 12

 13

 14

 15

 16

 17

 18

 19

 20

 21

 22
 6

 1 P R O C E E D I N G S

 2 MS. MARKOWITZ: Hello, good morning. I

 3 think we're ready to start; if you could take your

 4 seats. I'm Nancy Markowitz; I'm the Deputy

 5 Director of the Division of Market Oversight. And

 6 next to me is Vince McGonagle, the Director. I'd

 7 like to welcome all participants on the panels,

 8 the attendees, and the Commissioners that are here

 9 to the Roundtable on Made Available for Trade. I

 10 specifically want thank the panelists for their

 11 time, and we look forward to a robust and

 12 probative discussion on the three panels that we

 13 have today.

 14 With that I'd like to turn this over to

 15 my colleagues, Roger Smith and Nhan Nguyen, who

 16 have been those involved in setting up this Roundtable

 17 .

 18 MR. SMITH: Thank you, Nancy, for your

 19 kind introduction. Before we begin this meeting

 20 I've been asked to note for the record and briefly

 21 remind the Commissioners that this is an Agency

 22 Roundtable and not a Sunshine Act meeting.
 7

 1 Therefore it is important that Commissioners

 2 refrain from deliberating between or amongst

 3 themselves on the topics or issues discussed in

 4 today's meeting because such deliberations would

 5 result in a Sunshine Act violation and also result

 6 in potential APA issues. However, as in the past,

 7 Commissioners are free to ask questions of the

 8 Roundtable participants and also request

 9 clarifications on the points made today. Thank

 10 you.

 11 All right. As we begin the Roundtable

 12 I want to thank everyone for attending our Roundtable

 13 . The first panel will focus on the

 14 approaches to mandatory exchange trading that have

 15 been taken across various jurisdictions. It will

 16 feature presentations by a group of global

 17 financial regulators including the CFTC. At this

 18 time I'd like to go around the room and have each

 19 of the panelists present themselves and who they

 20 represent.

 21 MR. SRINIVASAN: Sayee Srinivasan, and

 22 I'm the Chief Economist.
 8

 1 MR. NGUYEN: Nhan Nguyen, Division of

 2 Market Oversight, the CFTC.

 3 MR. SMITH: Roger Smith, Division of

 4 Market Oversight, CFTC.

 5 MR. MCGONAGLE: Good morning, everyone,

 6 and thank you for coming; Vince McGonagle for

 7 Division of Market Oversight.

 8 MS. MARKOWITZ: Nancy Markowtiz,

 9 Division of Market Oversight.

 10 MR. VAN WAGNER: David Van Wagner,

 11 Division of Market Oversight.

 12 MS. SEIDEL: Heather Seidel, Chief

 13 Counsel in the Division of Trading and Markets at

 14 the SEC.

 15 MR. SCHOOLING LATTER: Edwin Schooling

 16 Latter, Head of Markets Policy Department in the

 17 UK Financial Conduct Authority.

 18 MR. MOCHIZUKI: Good morning, Kazunari

 19 Mochizuki Japan FSA.

 20 MR. SMITH: Thank you. To quickly

 21 review the format we'll have each of the panelists

 22 present their jurisdiction's approach to mandatory
 9

 1 exchange trading, and DMO staff may have a few

 2 clarifying questions after the presentations. To

 3 begin with I will turn to my colleague, Nhan

 4 Nguyen.

 5 MR. NGUYEN: Great, thanks, Roger. Good

 6 morning, everyone. On behalf of the Division of

 7 Market Oversight I'd like to provide a brief

 8 overview of the made available to trade or

 9 commonly referred to as the MAT process, and the

 10 Commission's implementation of the trade execution

 11 requirement to this date.

 12 So to start, the trade execution

 13 requirement mandates that swaps subject to the

 14 clearing requirement be executed on a swap

 15 execution facility, a SEF, or designated contract

 16 market, a DCM, unless no SEF or DCM makes those

 17 swaps available to trade or generally where the

 18 transaction would be subject to a clearing

 19 exception. The MAT process, which has been set

 20 forth in the Commission's regulations, allows a

 21 SEF or DCM to submit to the Commission an initial

 22 determination that a swap is available to trade
 10

 1 and therefore should be subject to the

 2 requirement. To submit a determination the SEF or

 3 DCM must first list or offer the swap for trading.

 4 Determinations can be submitted to the Commission

 5 through one of two processes, a self-

 6 certification process or a rule approval process.

 7 Each determination or submission must consider one

 8 or more of the following factors with respect to

 9 the swap: One, whether there are ready and

 10 willing buyers and sellers, two, the frequency or

 11 size of transactions, three, trading volume, four,

 12 number and types of market participants, five, the

 13 bid ask spread, and finally, the usual number of

 14 resting firm or indicative bids and offers.

 15 In terms of the standard or review of a

 16 submission, a MAT determination would be denied if

 17 it is deemed inconsistent with the Commodity

 18 Exchange Act or the Commission's regulations, and

 19 such a finding would generally depend upon the SEF

 20 or DCM's analysis, the determination of factors.

 21 However, I would note that a determination could

 22 also be deemed inconsistent if it doesn't consider
 11

 1 at least one or more of the required factors, the

 2 swap is not subject to mandatory clearing, or the

 3 swap isn't listed by the SEF or DCM that has made

 4 the determination. The length of the review

 5 depends on the manner in which the determination

 6 was submitted. So self-certifications are subject

 7 to an initial review of up to 10 business days

 8 with up to an additional 90 days if a stay is

 9 issued. Rule approval findings are subject to a

 10 45 day review period with an additional 45 days if

 11 a stay is issued.

 12 As I'll touch on further in a moment,

 13 filings are subject to a public comment period if

 14 the stay is issued. Now a stay may be imposed if,

 15 among other things, their submissions raise novel

 16 or complex issues that require additional time to

 17 review. But once a swap is deemed certified or

 18 approved, then the swap is made available to trade.

 19 SEFs that list or offer that swap once the swap

 20 has been made available to trade and subject to

 21 the trade execution requirement, they must do so

 22 pursuant to required methods of execution. DCMs
 12

 1 that list or offer the swap must do it so in a

 2 manner consistent with DCM Core Principle Nine.

 3 Market participants must comply with the trade

 4 execution requirement on the later of the

 5 applicable compliance deadline for the clearing

 6 mandate for the particular swap, or 30 days after

 7 the swap is deemed certified or approved as

 8 available to trade. And once the swap is MAT it

 9 remains subject to the trade execution requirement

 10 until it is no longer listed or offered for

 11 trading by any SEF or DCM.

 12 So to touch upon briefly the

 13 implementation of the trade execution requirement,

 14 in the fall of 2013 the Commission received

 15 determinations from five SEFs for certain interest

 16 rate swaps and certain credit default swaps

 17 through the self-certification process. Now given

 18 that these were the first determinations received

 19 by the Commission, the filings were put on a 90 day

 20 stay and subjected to a 30 day public comment

 21 period, during which time the Commission received

 22 multiple comment letters that addressed the
 13

 1 substance of each of the filings. Ultimately, the

 2 Division of Market Oversight determined that the

 3 five MAT filings appropriately addressed the

 4 factors and therefore recommended that the

 5 Commission allow them to self-certify. I would

 6 note as an aside that despite only needing to

 7 address at least one of the factors, each of the

 8 filings addressed more than one of the factors and

 9 in some cases all of them to support the

 10 determination submitted. Accordingly, upon

 11 self-certification the trade execution requirement

 12 went into effect during various stages during the

 13 first half of 2014.

 14 So the trade execution requirement

 15 currently applies to certain fixed to floating

 16 interest rate swaps and several benchmark tenors

 17 and certain credit default swaps based on a

 18 limited number of indices as you can see in the

 19 diagram behind us. And as we'll get into in later

 20 panels, these swaps are generally considered to be

 21 relatively standard and liquid.

 22 Since the effective date the Commission
 14

 1 has monitored how the requirements have been

 2 implemented and has addressed questions and

 3 concerns, which is something that we continue to

 4 do. And where appropriate the Division has

 5 provided time limited no action relief with

 6 respect to MAT-ed swaps for certain types of

 7 transactions, such as package transactions, and

 8 transactions executed between affiliated counterparties

 9 .

 10 MR. SMITH: Thank you, Nhan. Heather?

 11 MS. SEIDEL: Thank you. And before I

 12 began I have to note, as usual, as a matter of

 13 policy the SEC disclaims responsibility for the

 14 private statements of SEC employees. So any views

 15 that I express today are my own views and do not

 16 necessarily reflect the views of the SEC, the

 17 Commissioners, or my colleagues on the staff at

 18 the SEC.

 19 So first I just wanted to note that the

 20 changes to the Exchange Act from the Dodd-Frank

 21 Act mirror the changes to the CEA in this regard.

 22 So we have the similar statutory requirements that
 15

 1 require transactions in security based swaps that

 2 are subject to the mandatory clearing requirement

 3 to be executed on an exchange or a security based

 4 swap execution facility unless no exchange or SEF

 5 makes the swap available to trade or unless the

 6 swap is covered by the end user exception to the

 7 clearing requirement. So the same statutory

 8 structure exists for security based swaps as for

 9 swaps.

 10 In proposing its SEF rules in 2011, the

 11 SEC noted that the determination by one or more

 12 SEF or an exchange that a security based swap is

 13 available to trade on the SEF or exchange would

 14 impact the trading of that security based swap, as

 15 it would no longer be able to trade in the over

 16 the counter markets. And in this context, the

 17 Commission discussed in the proposing release the

 18 potential conflicts of interest that could arise

 19 with respect to when security based swaps are or

 20 are not made available to trade. For instance it

 21 noted that a SEF was permitted to determine that a

 22 swap was made available as a trade. Any one SEF
 16

 1 could essentially prevent that security based swap

 2 from being traded in the over the counter market

 3 if it said that it was made available to trade on

 4 its markets. Conversely, the Commission also

 5 noted that a group of market participants could

 6 have competitive incentives to limit the number of

 7 security based swaps that would be designated as

 8 made available to trade in order to keep those

 9 swaps trading in the over the counter market.

 10 And so because of these concerns, the SEC

 11 proposed that the made available to trade

 12 determination should be made pursuant to objective

 13 measures established by the Commission rather than

 14 by one or more SEFs or exchanges. And the

 15 Commission did not propose actual objective

 16 standards in its release, but it did note that the

 17 objective measures could provide that the swap

 18 that is subject to mandatory clearing would be

 19 considered made available to trade unless the swap

 20 fails to meet certain thresholds that the

 21 Commission could adopt or, alternatively, the

 22 objective measures could provide that no security
 17

 1 based swap would be considered made available to

 2 trade unless it met certain thresholds that would

 3 be adopted by the Commission. And the Commission

 4 also noted that this approach would in effect

 5 interpret the phrase, made available to trade, in

 6 the Exchange Act as meaning something more than

 7 the decision to simply trade or list on a SEF or

 8 an exchange. And the Commission also noted that

 9 this approach would have the further effect of

 10 permitting swaps to be subject to the

 11 mandatory clearing independently of whether they

 12 are required to be traded, so that these would be

 13 two different independent decisions. The SEC, as I

 14 noted, did not propose any objective standards,

 15 stating that it did not believe it had sufficient

 16 data at the time to support a proposal, but it did

 17 however solicit comments on how the Commission

 18 should craft those objective standards, and stated

 19 that it expected it world separately address how

 20 to determine whether a security based swap would

 21 be made available to trade.

 22 And also in a related context, the
 18

 1 Commission in the same rulemaking proposed a rule

 2 811(c) which would require a SEF to have a swap

 3 review committee, and that that committee would be

 4 responsible for determining which swaps would

 5 trade on that SEF and which swaps would not trade

 6 on that SEF. And the Commission, we received

 7 approximately 16 comment letters relating to our

 8 request for comment on make available to trade.

 9 And roughly 11 commenters supported the proposal of

 10 providing objective standards as opposed to having

 11 one or a group of SEFs on their own determine what

 12 is made available to trade. Three commenters

 13 believe that once the Commission determined a swap

 14 is required to be cleared that swap should also be

 15 considered made available to trade. And one

 16 commenter stated its view that once a swap is

 17 listed on a SEF it should be considered made

 18 available to trade. And commenters also suggested

 19 various criteria that the Commission could look to

 20 for these objective measures in determining

 21 whether a swap should be made available to trade,

 22 and these criteria sound a lot like the criteria
 19

 1 in the CFTC rules. For instance, the liquidity of

 2 the security based swap, the frequency with which

 3 it is traded, the size of the transactions in that

 4 security based swap, the number and type of

 5 participants, the size of the bid offer markets,

 6 and the number of market makers.

 7 So in a nutshell, the Commission in its

 8 proposal with respect to the SEF rules asked for

 9 comment in this area, we received a significant

 10 amount of comment and, you know, we continue to

 11 analyze those comments to determine next steps in

 12 this area.

 13 MR. MCGONAGLE: Heather, interested in

 14 hearing a little bit more about the proposed --

 15 sort of the composition of the swaps review

 16 committee, what did the Commission propose and

 17 what were the commenters focused on, and how that

 18 committee should act and what responsibilities

 19 they should have.

 20 MS. SEIDEL: So we proposed that the

 21 swap review committee would have to be

 22 compositionally balanced. And so in effect that
 20

 1 would mean that all classes of participants on the

 2 SEF would have to be represented, as well as other

 3 types of market participants, such as buy-side

 4 firms, end-users. And this was proposed so that

 5 the process of determining which security based

 6 swaps would trade on the SEF would be fair and

 7 that the voice of all the different types of

 8 market participants, they would have a voice in

 9 that process. We did receive I think

 10 approximately nine comment letters on the swap

 11 review committee requirements that we proposed.

 12 Four commenters generally favored having a swap

 13 review committee make the decisions about which

 14 products would be listed or traded on the SEF, and

 15 two commenters favored these requirements about

 16 the fair representation on the swap review

 17 committee. Four other commenters, however, had

 18 some concerns about the compositional requirements

 19 and proposed certain alternative compositional

 20 requirements or requested further guidance. And

 21 we received some other comments as well in other

 22 areas of the swap review committee.
 21

 1 MS. MARKOWITZ: I have a question, a

 2 follow up to -- does that mean one committee that

 3 will go across the board for all the SEFs and for

 4 all the products that are listed, or are you

 5 talking about when particular SEF wants to list a

 6 product and then that committee will be formed for

 7 that SEF?

 8 MS. SEIDEL: Right. So it would be each

 9 SEF would be required to have its own swap review

 10 committee.

 11 MS. MARKOWITZ: So if one SEF's

 12 committee determines that it's a made available to

 13 trade does that then apply to the other SEFs in

 14 the industry?

 15 MS. SEIDEL: No. So in this regard what

 16 we've proposed in this area is that the

 17 determination again would be that the Commission

 18 would set objective standards that a swap would

 19 have to meet in order to be made available to

 20 trade. So that was what I was referring to

 21 earlier in the terms that it would not be if one

 22 SEF said it's made available to trade then that
 22

 1 would be binding on everybody. It would be

 2 pursuant to objective measures that the Commission

 3 would set.

 4 MS. MARKOWITZ: So the opinion of the

 5 committee is just the opinion that goes into the

 6 whole analysis of whether --

 7 MS. SEIDEL: Of whether or not to list

 8 that product for trading on its exchange.

 9 MS. MARKOWITZ: Okay.

 10 MS. SEIDEL: And the fact that it's

 11 listing on that SEF or exchange wouldn't

 12 necessarily mean that it's made available to trade

 13 under the statue.

 14 MS. MARKOWITZ: Okay.

 15 MR. SMITH: Thank you, Heather.

 16 Kazunari?

 17 MR. MOCHIZUKI: Thank you very much for

 18 giving me an opportunity to attend this Roundtable

 19 and to present the views on the extremely

 20 important topics regarding organized trading

 21 platforms. Like mandatory clearing, There is a

 22 clear need to harmonize rules among regulators as
 23

 1 much as possible. In that sense let me introduce

 2 our regulatory framework on this front.

 3 For the purpose of enhancing the

 4 fairness and the transparency of OTC derivative

 5 transactions. In Japan, Finance Instruments and

 6 Exchange Act was a mandate in 2012. The amendment

 7 to the Act were to introduce the regulatory

 8 framework for mandatory trading, the (electronic

 9 trading platforms, which was followed by a series

 10 of administrative procedures such as a publication

 11 of cabinet office ordinance, and the

 12 notification. Under the information framework,

 13 JFSA will introduce mandatory trading for Japanese

 14 yen denominating plain vanilla interest rate swaps,

 15 and electric trading platform regulations in

 16 September 1, 2015.

 17 In this framework the entities that are

 18 subject to the mandatory use of electric trading

 19 platform, the financial institutions with the

 20 outstanding notional amount of no less than six

 21 trillion Japanese yen for OTC derivative

 22 transactions. And the entities who engage in
 24

 1 electronic trading platform business should be

 2 financial institutions registered with or

 3 permitted by JFSA. Requirement for the electric

 4 trading platform business is to have order books

 5 and to transact with order books or at least

 6 request for quote for no less than three counter

 7 parties. Trade information should be published

 8 after the transaction without delay. Item of

 9 publication is to include trade date, product

 10 category, and transaction amount.

 11 But let me move on to the determination

 12 process of mandatory trading. The determination

 13 process of mandatory trading is almost identical

 14 to that of the mandatory clearing. In order to

 15 make a determination on the produce subject to the

 16 mandatory trading, JFSA is required to conduct

 17 public consultation beforehand. JFSA makes the

 18 final determination on the products subject to the

 19 mandatory trading, taking into account the

 20 comments raised through the pubic consultation

 21 process which lasts at least one month. There are

 22 not any other legal constraints for JFSA on when
 25

 1 to make the final determination.

 2 The scope of products subject to

 3 mandatory trading is a subset of the scope of the

 4 products subject to mandatory clearing. We

 5 considered that this approach is quite similar to

 6 the CFTC's approach. At the same time Financial

 7 Instruments and Exchange Act allows JFSA to make a

 8 final determination in accordance with the basic

 9 criteria for mandatory trading, noting that

 10 transaction volume and other conditions should be

 11 taken into account. In this context we consider

 12 our approach is similar to the European approach.

 13 We know that to avoid market fragmentation,

 14 coordination among regulatory authorities.

 15 Regulators on the Cross Border basis is

 16 indispensable.

 17 As to the recent development on 13th of

 18 July, JFSA determined the products subject to the

 19 mandatory trading and scheduled the mandatory

 20 trading under the electric trading platform take

 21 effect on the 1st of September 2015. The products

 22 subject to the mandatory trading fixed to floating
 26

 1 interest rate subs which are cleared by Japan

 2 Securities Clearing Corporation and with regard to

 3 the detail of product's condition. Floating rate

 4 index is the six months' LIBOR, and tenors of --

 5 five, seven, and ten years.

 6 Thank you very much.

 7 MR. MCGONAGLE: I just had a follow up

 8 question. I was interested in learning how JFSA

 9 may go about making future determinations for

 10 mandatory trading under the clearing requirement.

 11 What information will you gather and how does that

 12 process work going forward?

 13 MR. MOCHIZUKI: Thank you very much for

 14 your question. So as explained the scope of the

 15 interest rate product that's a subject to electric

 16 trading platform mandate is to be determined by

 17 JFSA, taking into account various factors,

 18 including but not limited to a number and

 19 aggregate notional amount of the transactions per

 20 day. And basically we do not have any periodic

 21 review system, but we monitor the market

 22 development on an ongoing basis and take actions
 27

 1 if necessary.

 2 MR. NGUYEN: Kazunari, were there other

 3 asset classes, swaps in other asset classes that

 4 were taken into consideration prior to the

 5 finalizing of the initial scope of the mandate?

 6 MR. MOCHIZUKI: Well, basically our

 7 framework in, you know, the focusing on the

 8 certain type of products, which means, you know,

 9 the interest rate swaps. So basically we are

 10 focusing on what type of product, you

 11 know, within the type of interest rate swaps

 12 should be subject to the mandatory trading. So

 13 basically we are focusing on that.

 14 MR. SMITH: Kazunari, one interesting

 15 aspect of your trading mandate is that it will be

 16 limited to financial institutions with outstanding

 17 notional of greater than six trillion Japanese

 18 yen, or approximately $50 billion. Can you

 19 provide just a little brief explanation of this

 20 aspect?

 21 MR. MOCHIZUKI: Thank you. So this

 22 issue was determined in consideration of various
 28

 1 factors such as the conditions for the initial

 2 introduction of the mandatory clearing. So, yes,

 3 this condition was calculated based on that type of

 4 analysis.

 5 MR. VAN WAGNER: Just a quick question,

 6 recognizing that the trading mandate swaps or

 7 products are a subset of the clearing mandate

 8 swaps, can you tell us are there any products that

 9 are subject to your clearing mandate that you have

 10 decided not to go forward with any sort of

 11 training mandate, and if you could explain how you

 12 made that call, made that decision?

 13 MR. MOCHIZUKI: Well, under the kind of

 14 Japanese regulatory framework, you know, Japanese

 15 yen denominated interest rate swaps and certain type

 16 of CDS are subject to the mandatory clearing

 17 requirement. Among those As explained the aspects such

as the

 18 transaction boarding mandate as a trading (inaudible) 

worth

 19 taking into account and we decided that the

 20 (inaudible), the certain type of products such as,

 21 you know, the fixed rate to floating interest rate

 22 swaps, the six months LIBOR, and tenor, you
 29

 1 know, the five, seven, ten years is 

 2 appropriate for the trading market.

 3 MR. SMITH: Thank you. Edwin?

 4 MR. SCHOOLING LATTER: Thank you. So

 5 while the slides come up I'll begin with an

 6 apology. This is a linguistic one. American

 7 English and English English are very similar of

 8 course, but one difference is that when I -- I may

 9 fall into the trap of referring to the Commission,

 10 and will almost certain meant the European

 11 Commission, not this Commission. So I thought I'd

 12 apologize for that in advance and to the kind

 13 hosts here.

 14 The second point to make clear up front

 15 in describing the EU mandatory trading regime, is

 16 of course that we're some years behind the CFTC.

 17 So what I'm going to describe is a regime that is

 18 going to be coming into force in the next two to

 19 three years, and not one that's in force already.

 20 And some aspects of that are set out in our

 21 regulations, the MiFIR or MiFID II. Other aspects

 22 of it, some details of it are part of so-called
 30

 1 regulatory technical standards, or level two

 2 standards that are actually not yet fully

 3 finalized. As many people in the room well know,

 4 those have been out for consultation and the final

 5 standards are due to be published in September.

 6 So having said that the broad parameters

 7 of this regime are already clear and that's what I

 8 will now describe. So firstly in terms of scope,

 9 so what derivatives will this regime cover. The

 10 key point is, as in Japan, this will be limited to

 11 derivatives that are already subject to the clearing

 12 obligation under our EMIR regulation. Two other

 13 tests that a derivative must pass before it can be

 14 made part of the mandatory trading obligation.

 15 One of those is that there is at least one EU

 16 trading venue on which it can be traded, not

 17 surprisingly. And the second is that that

 18 derivative is deemed to be sufficiently liquid.

 19 And the other point to make clearly probably is

 20 that this structure means that there is no bottom

 21 up made available to trade process in the sense

 22 that a venue can't come along and say I'm now
 31

 1 allowing trading in this particular derivative on

 2 my venue, therefore I would like to propose that

 3 it is included in the mandatory trading

 4 obligation. There's no route to do that in

 5 Europe, it will all stem from the mandatory

 6 clearing obligation.

 7 In terms of what the liquidity test

 8 means, seen in the middle of that slide up there,

 9 very similar tests and language to that to which

 10 CFTC and SEC colleagues have already used. So

 11 we'll look at the average frequency and size of

 12 trades, the number and type of active market

 13 participants, the size of spreads, and so on. ESMA

 14 will also have to have regard to the anticipated

 15 impact that the trading obligation will have on

 16 the liquidity of those derivative markets,

 17 products, and the commercial activities of end

 18 users which are not financial entities. So what

 19 will be the impact on the non-financial companies

 20 that use these derivatives?

 21 Which counterparties will the EU

 22 trading obligation apply to? Well, it will apply
 32

 1 to financial counterparties, clearing members,

 2 dealers, investment firms, credit institutions,

 3 other financial institutions, although there is

 4 likely at least initially and possibly on a

 5 longer-term basis an exemption for pension funds.

 6 It applies only to some -- it will apply only to

 7 some non-financial counterparties, namely those

 8 who are also caught by the clearing obligation,

 9 and that is non-financials that have positions in

 10 OTC derivative contracts that exceed various

 11 thresholds. There are about three billion euro in

 12 notional interest rate outstanding, about a

 13 billion in credit derivative outstanding for

 14 example. So not all non-financial companies, indeed

 15 not all, except pension funds, financial

 16 institutions will be caught by that obligation.

 17 I thought it would also be useful to

 18 pause for a moment on whether there will be a

 19 third county impact of this to outside and beyond

 20 EU entities. And in the regulation two types of

 21 non-EU entities are identified as potentially

 22 being subject to this obligation. Firstly, third
 33

 1 country entities, whether financial or non-

 2 financial, that had they been EU institutions

 3 would have been subject to the clearing obligation

 4 in EU, and for these firms, institutions, it will

 5 be those transactions that they undertake with EU

 6 counterparties who are subject to the trading

 7 mandate that will also be subject to the EU

 8 trading mandate. Now what that means of course,

 9 because it's likely that there's going to be an

 10 overlap between third country entities who would

 11 be caught by the EU trading obligation, and for

 12 example, U.S. companies who would be caught by U.S.

 13 trading obligations, is that unless we and our

 14 colleagues in CFTC and SEC have worked out an

 15 equivalent arrangement whereby a U.S. venue is a

 16 legitimate and eligible venue in which you can

 17 fulfill the EU trading mandate, and that would be

 18 vice versa, we would obviously have a problem

 19 there because on the one side you would be saying

 20 European firms have to do it at a European venue

 21 and then the other U.S. firms have to do it at a

 22 U.S. venue.
 34

 1 Now there is another category of firms

 2 who would potentially be caught by our trading

 3 obligation and that is this set who are described

 4 as undertaking transactions and contracts which

 5 have a direct substantial and foreseeable effect

 6 within the EU. As some of you will know what that

 7 means is being further defined in a technical

 8 standard, and I can't tell you what the current

 9 draft of that technical standard is, but let's

 10 assume for a moment it's similar to ones that were

 11 consulted on. I think that would mean this set

 12 was very, very small indeed. It's basically those

 13 that have a significant guarantee from an EU

 14 financial institution.

 15 Now what about the timing of all this?

 16 As I mentioned earlier our trading obligation

 17 derives from the clearing obligation. And what

 18 that means is that ESMA within six months of the

 19 EU authorities adopting a clearing obligation for

 20 a particular derivative, ESMA has to give a draft

 21 technical standard which also says whether it will

 22 be subject to the trading obligation and from what
 35

 1 time, and for what counterparties. So for example

 2 it's possible, and I'm not in any way predicting

 3 whether this is likely or not, but it's possible

 4 that it would say yes, financial institutions,

 5 clearing members of CCPs have to come a part of

 6 the trading obligations, that non-financial

 7 companies are not. So I'm not saying that's

 8 likely, it's just possible.

 9 Now what does that mean in terms of

 10 dates? There are still quite a lot moving parts

 11 in this, so unfortunately this isn't a train

 12 timetable where I can tell you where it's going to

 13 stop at each station and when. But what happens

 14 first is the European Commission has to endorse

 15 the draft technical standards from ESMA on the

 16 clearing obligation. Commissioner Hill said a

 17 couple of months ago that the Commission were

 18 going to do that soon, and we anticipate that in

 19 the next weeks or so. Now from then other bits of

 20 the European institutional architecture, EU

 21 institutional architecture, the European

 22 Parliament, and the so called European Council,
 36

 1 that's member state governments, have a period in

 2 which they can object. If they don't object then

 3 the clearing obligation gets published in the so

 4 called official journal. Three weeks after that

 5 it comes into force, and that's when this six

 6 month timetable for ESMA to make its

 7 recommendation on the trading obligation begins.

 8 During that period also has to do a public

 9 consultation. So again mirroring the arrangements

 10 in Japan. And then that draft technical standard

 11 will go through a similar process to the clearing

 12 obligation technical standard getting endorsed by

 13 the European Commission, again subject to

 14 objection or non-objection by the Parliament and

 15 the Council.

 16 Now given that MiFIR doesn't come into

 17 force until 3rd of January 2017, we can't

 18 anticipate trading obligation being live before

 19 then. And indeed although we can't give a precise

 20 date, I think in working out when this will happen

 21 it's also important to recognize the challenges

 22 EMSA will face in doing its liquidity assessments
 37

 1 when the clearing obligation itself is only taking

 2 effect in a staged manner. So in fact some firms

 3 will not be subject to that clearing obligation

 4 until well into 2017, which will complicate the

 5 process of a very early trading mandate

 6 implementation. With that said, the regulation

 7 also says that by March 2019, ESMA and the

 8 Commission have to report on the progress they've

 9 made in doing this. So it's not that there's no

 10 pressure to get this done and live, there is, and

 11 that's part of fulfilling the G20 mandate of

 12 course.

 13 Where will you be able to fulfill your

 14 duties to trade on an electric platform. So there

 15 are three types of EU trading venues which will be

 16 eligible. Firstly are so called regulated

 17 markets. I guess loosely you could compare them

 18 with the DCMs here in the U.S. And then two other

 19 categories, multilateral trading facilities, MTFs,

 20 our acronym, and organized trading facilities, which are

 21 also multilateral. Pretty unfortunate that that

 22 word is used in one description rather than the
 38

 1 other, but OTFs are also multilateral, and those I

 2 guess would be more analogous to your SEFs in the

 3 United States. Now in addition to those EU

 4 venues, and very importantly, regulation envisages

 5 that it will also be possible to fulfill the

 6 trading mandate using a trading venue in a non-EU

 7 jurisdiction where the Commission has adopted an

 8 equivalent decision, point one at the bottom of

 9 that slide. And point two, where that non EU

 10 jurisdiction has also agreed equivalence for the

 11 EU trading venues. And then looking at a little

 12 bit more data, 30 seconds or so on what that

 13 equivalence decision is based on. And you can see

 14 in the ABC provisions up there, EU has to satisfy

 15 itself that those trading venues are subject to

 16 authorization, effective supervision, and

 17 enforcement, that they have clear and transparent

 18 rules seeking to ensure that financial instruments

 19 are capable of being traded in a fair, orderly,

 20 and efficient manner, freely negotiable, that

 21 market transparency, integrity is ensured via

 22 rules addressing market abuse. So now this a
 39

 1 process and I can't predict its outcome, but also

 2 on a personal basis I would certainly see no

 3 reason why, for example, SEFs would have

 4 difficulty given that CFTC's regime in passing

 5 those tests, but we need to pass the second leg as

 6 well in terms of having mutual equivalence.

 7 I think that's probably enough by way of

 8 an overview, but again happy to take any follow up

 9 questions.

 10 MR. SMITH: Will ESMA periodically

 11 re-evaluate determinations that a class of swaps

 12 are sufficiently liquid?

 13 MR. SCHOOLING LATTER: Right. So ESMA

 14 is obliged under the regulation to reassess its

 15 decisions when there is a material change. So

 16 short answer, yes.

 17 MR. MCGONAGLE: Edwin, I have a general

 18 question and some specific follow ups. Just so

 19 generally in terms of market reaction to the

 20 proposal are there areas of interest that you

 21 might highlight if possible where the market has

 22 weighed in heavily and where the recommendation is
 40

 1 consistent or inconsistent with what you're seeing

 2 in the market in terms of comments?

 3 MR. SCHOOLING LATTER: So I would say

 4 that from a consultation responses and the

 5 lobbying activity, it's fairly clear that the most

 6 controversial element of the EU regime is not so

 7 much the venue requirements or the process for

 8 determining whether the trading mandate applies,

 9 but the pre-trade -- in particular the pre-trade

 10 or the post-trade transparency requirements that

 11 will apply to certain classes of derivatives. Now

 12 those requirements I should say will apply whether

 13 the trade takes place on a regulated market, on a

 14 MTF or an OTF. They're all subject to exactly the

 15 same pre-trade and post-trade transparency

 16 requirements, though there are some waivers for an

 17 RFQ and voice trading systems for large in scale

 18 derivative trades.

 19 MR. MCGONAGLE: And then specifically on

 20 the determination of the liquidity testing can you

 21 give some color or context around the phrasing of

 22 anticipated impact? What might be an anticipated
 41

 1 impact that would be in favor of MAT determination

 2 -- my word, sorry -- or an anticipated impact that

 3 would take it out?

 4 MR. SCHOOLING LATTER: Right. So to

 5 some extent of course I can't speak for ESMA who

 6 will own that process, but we will be involved in

 7 it. I imagine they will be very focused on the

 8 likely impact on first the overall liquidity in

 9 that derivative, and secondly, the impact on

 10 different types of users. So the objective will

 11 be to make this easier and hopefully cheaper to

 12 trade through increasing transparency requirements

 13 and through increasing access. Conversely, if it

 14 looks like drive insisting that it's traded on

 15 venue could have the opposite effect in terms of

 16 overall liquidity or be very difficult or

 17 expensive for some counterparties, that would

 18 likely weigh against extending the trading

 19 mandate.

 20 MR. MCGONAGLE: And then I'm interested

 21 in hearing a little bit more about the nexus

 22 between the clearing determination which triggers
 42

 1 the six month potential implementation then for

 2 trading, is during the objection period would

 3 there be expect for consideration of phasing? One

 4 of the comments I think we've heard here in the

 5 U.S. is a clearing determination, market readiness

 6 for transacting just solely on facilities, that

 7 the linkage between the two or the timing from

 8 clearing to trading might need to be broader than

 9 what our rules currently envision. I'm just

 10 interested to see how strict the six month

 11 requirement is or how flexible it is rather.

 12 MR. SCHOOLING LATTER: Right. So great

 13 question. And of course in Europe we have the

 14 luxury of going not first so we can learn from

 15 your own experiences in the vanguard. There is

 16 actually quite a lot of potential for flexibility

 17 built into the process. So when ESMA makes its

 18 recommendation that the trading mandate comes in,

 19 it has complete scope to say when and to have

 20 phase-in periods, for example applying it first to

 21 some type of institutions you might find it easier

 22 with lags for others. Indeed if there are early
 43

 1 implementations of the trading mandate, because

 2 ESMA has already -- or the EU has already set out

 3 a very lengthy phase-in period for the clearing

 4 obligation, it's kind of inevitable there will

 5 also be quite a length phase-in for trading.

 6 MR. MCGONAGLE: So one more question. A

 7 lawyer should never say one mere because there is

 8 always more. The issue or the question concerning

 9 a determination of the liquidity threshold, what

 10 volume of trading is sufficient, how looking at an

 11 objective standard a determination of that level

 12 to the extent that there has been an inclination

 13 of where the level should be set, how has that

 14 been received by the market -- too tight, not

 15 broad enough? Sort of any feeling about what the

 16 reaction is to the objective liquidity standard?

 17 MR. SCHOOLING LATTER: Right. To some

 18 extent it's difficult to answer that questions

 19 before decisions have been made, but I think what

 20 will be in market participants' minds is of course

 21 that there is already a liquidity test in the

 22 clearing obligation, and the clearing obligation
 44

 1 has only been extended to already quite liquid

 2 instruments. So because we're at most a subset of

 3 those I would hope there's some presumption that

 4 there is good liquidity in these markets.

 5 MR. VAN WAGNER: Well, then in the

 6 clearing mandates space how much transparency is

 7 around your liquidity standard? I mean obviously

 8 enough -- like if you look here you see all these

 9 factors. Everybody sort of agrees on the factors,

 10 but it's drilling down and I mean so in the

 11 clearing space is there transparency around what

 12 was used to make those -- be used to make those

 13 determinations around liquidity?

 14 MR. SCHOOLING LATTER: So there's

 15 transparency through the consultation process. So

 16 before a clearing obligation can be brought in

 17 ESMA has to go through this public consultation,

 18 has to say what it's proposed and why, and has the

 19 chance for feedback. The other element of the EU

 20 regime where this transparency about what's above

 21 or below certain thresholds is relevant, goes back

 22 to the transparency requirements. So you have
 45

 1 seen in the draft technical standards there are

 2 some quite specific and explicit suggestions on

 3 how we calibrate what's a derivative that's

 4 considered liquid enough to be subject to the

 5 transparency requirements and what isn't.

 6 MS. MARKOWITZ: I just have one

 7 question. Have you all made any determinations

 8 with the three markets of the type of execution

 9 methods or the flexibility of trading in those

 10 markets?

 11 MR. SCHOOLING LATTER: Okay. So we're

 12 not prescriptive in the EU about the execution

 13 methods that the venues have to employ. So for

 14 example taking MTFs and OTFs, they can use central

 15 limit order books, they can have quote driven

 16 systems, they can do RFQ, they can use and develop

 17 hybrids of all of those. The difference between

 18 those two types of platform, the MTFs and the

 19 OTFs, is that where it's an MTF, the operator of

 20 the venue is not allowed to use its own discretion

 21 in any way on whether to match two trading

 22 interests. That has to be entirely automatic, non-
 46

 1 discretionary, built into the rules of the system

 2 and totally transparent. With the organized

 3 trading facility, although the same transparency,

 4 the same multilateral, the same access

 5 requirements apply, we wanted to create room for

 6 those operators that play a role in matching

 7 trading interest. So interdealer brokers would

 8 be examples of these, and where actually they want

 9 to help generate some trading interest by

 10 suggesting those two players how aren't so far

 11 apart, and actually if they both refresh their

 12 quotes there might be a trade here, or looks like

 13 a match but they think the two -- we know the two

 14 of you would really like to deal in larger size,

 15 have you thought of doing it in larger size. So

 16 in the organized trading facility we've built in

 17 room for the operator to use some discretion in

 18 matching those trading interests.

 19 MS. MARKOWITZ: But the same products

 20 can be traded on both platforms?

 21 MR. SCHOOLING LATTER: Yes.

 22 MR. SMITH: I'd like to give
 47

 1 Commissioner Giancarlo and Chairman Massad an

 2 opportunity to ask questions if they have any.

 3 MR. GIANCARLO: Edwin, I do want to just

 4 dig into Nancy's question a little bit in terms of

 5 methods of execution. So it is my understanding

 6 that the OTF does not restrict methods of

 7 execution to RFQ and order book systems, is that

 8 correct?

 9 MR. SCHOOLING LATTER: Correct.

 10 MR. GIANCARLO: Within that notion of

 11 discretion. So the notion is to allow the

 12 platform itself to choose the method of execution

 13 that is in the best interests of whatever market

 14 segment or whatever practices they are trying to

 15 achieve. Is that correct?

 16 MR. SCHOOLING LATTER: Yes.

 17 MR. GIANCARLO: I think that's all.

 18 Thank you. And I just wanted to say thank you for

 19 being here and to Kazunari, thank you and Heather

 20 very much. This is very helpful to our work, so

 21 thank you for coming today.

 22 MR. VAN WAGNER: I'm sorry, I have a
 48

 1 real quick question. This is just a curiosity

 2 because you mentioned the trading mandate applying

 3 to financial counterparties but not to non -- the

 4 NFCs I guess you call them here. I'm assuming

 5 though that if an NFC does something, you know,

 6 off-platform, they could do such a transaction

 7 opposite a financial counterparty or they're just

 8 -- because of they're limited to just finding each

 9 other I guess that's not practical.

 10 MR. SCHOOLING LATTER: Quite. So just

 11 firstly to clarify, NFCs, we have this concept of

 12 NFC pluses, so there are some non-financial companies

 13 who are dealing in derivatives in very substantial

 14 volumes and not for hedging processes that would

 15 be caught by the clearing and the trading

 16 obligations. Probably not so many, but the really

 17 big ones. The others as you say are outside.

 18 Certainly my understanding that when they then

 19 deal with the financial institution on the other

 20 side of that transaction that trade is not subject

 21 to the trading mandate as you say. There will be

 22 very, very few corporate-to-corporate deals
 49

 1 anyway.

 2 MR. SMITH: With that I will bring this

 3 panel to a close. Again I'd like to thank you all

 4 for taking the time out of your very busy

 5 schedules to participate on our Roundtable. We

 6 will take a short break and begin the next panel

 7 at 11 o'clock. And again thank you for

 8 participating on our Roundtable.

 9 (Off the record 10:55 a.m.)

 10 (On the record 11:03 a.m.)

 11 MR. SRINIVASAN: So I'm going to get

 12 started with the Panel Two. We have a good bunch

 13 of speakers out here. And as we did in the case

 14 of the first panel I'm just going to have each one

 15 of you introduce yourself and then what we decided

 16 was that the sequencing will be Amir -- he has

 17 some interesting stats from the realtime ticker

 18 -- Kevin, Professor Duffie, and then Professor

 19 Hull. So you can start with introductions from

 20 that.

 21 DR. DUFFIE: Good afternoon -- good

 22 morning, pardon me. Darrell Duffie, Stanford
 50

 1 University.

 2 DR. HULL: John Hull, University of

 3 Toronto.

 4 MR. KHWAJA: Amir Khwaja, Clarus

 5 Technology.

 6 MR. MCPARTLAND: Kevin McPartland,

 7 Greenwich Associates.

 8 MR. SRINIVASAN: Amir.

 9 MR. KHWAJA: Great. Thank you, Sayee.

 10 So I guess I have a few slides to cover. Oops,

 11 not a great start. Sorry. I'm not sure why that

 12 --

 13 SPEAKER: It's the one --

 14 MR. KHWAJA: This one? So we have --

 15 okay. So I guess I'll talk first about the

 16 sources of data we've used in this analysis and

 17 really focus on on-SEF volumes and on/off-SEF

 18 percentage share. What that data tells us,

 19 picking one product from credit, FX, and interest

 20 rates. And we have some comments on how to

 21 improve that data, sort of improve transparency in

 22 this analysis, and a conclusion on those topics.
 51

 1 So hopefully I think about 12 slides, so hopefully

 2 -- I promised Darrell it would be 15 minutes or

 3 less.

 4 So source of data. So I think the

 5 Clarus product we've used are SDRView. That

 6 sources data for U.S. persons trade level from the

 7 CFTC Part 43 data. So it's trade level intraday

 8 type information. SEFView, which is U.S. persons 

end-of-day

 9 instrument level from the Part 16 data, as

 10 CCPView, which is global at a higher product type

 11 level. So therefore we have access to in terms of

 12 data, all of that is public data which has only

 13 been available in the last three years, post

 14 Dodd-Frank, that transparency. And for what we

 15 give these sources, we have multiple sources, so

 16 there are many SDRs in the U.S., many SEFs, so for

 17 each of those we have to collect clean, normalize

 18 that data to make it comparable for analysis

 19 purposes. And then we produce a weekly commentary

 20 on what that data shows in trends. There is a

 21 Clarus blog that is widely followed in terms of

 22 people directly interested in what's new in
 52

 1 transparency in the U.S.

 2 So I guess the first question I'd like

 3 to talk about his how comprehensive is that data

 4 coverage. People often ask us is it applicable,

 5 the data you have the SDRs, right. I guess the

 6 answer depends on the currency and the product

 7 you're looking at, right. So if we look at the

 8 biggest product type, U.S. dollar interest rate swaps,

 9 in terms of gross notional. And I think that shot

 10 represents the size of the data we have. So the

 11 gray circle is on-SEF volume, the green and blue

 12 is the SDR data in the U.S., and the pink is the

 13 global cleared volume. So I think -- so what we

 14 would say is the SDR data in the U.S. represents

 15 the majority of the dollar interest rate swap market,

 16 right, over 60 percent, or the cleared sub market.

 17 So then my examples, so we'll pick one product

 18 from credit, FX, and interest rates and see how

 19 the mandatory trading determination affected those 

product

 20 types. So I think -- so I've started with the

 21 largest index product North American investment

 22 grade, so that contract type has a MAT
 53

 1 determination, it's required it's five year and

 2 it's permitted if it's seven year or ten year on

 3 their maturities. If we look at those volumes

 4 from January 2014 to June 2015, we can see it

 5 averages over 100 billion, 200 billion a month

 6 depending on the month, type, and volume. I think

 7 all we can say is that the lowest volume was in

 8 Feb 2014, which is the month of the MAT

 9 determination for CDS trades. I think those

 10 spikes you see are caused by the rolls in versions

 11 of the contracts in March and October. And I

 12 guess what we can say is that the MAT

 13 determination did not impact volumes in a negative

 14 way, in any kind of way, right. Beyond that it's

 15 hard to observe any kind of meaningful pattern.

 16 If we then turn to the on-SEF percentage

 17 share I think what we see is that it's increased

 18 from 55 to over 95 percent, and that's primarily

 19 because it's a very standard contract and everyone

 20 trades five year CDX NA IG). So that's like --

 21 you know, that slide shows the -- we're over 96 percent

 22 in terms of on-SEF share of the market for that
 54

 1 product.

 2 If we then turn to FX NDFs, which are

 3 permitted products; there's been no MAT

 4 determination, and I think here I think the top

 5 six currencies, three Latin and three Asian, what

 6 we see on that slide is that volumes have

 7 increased over the last 18 months by over 50

 8 percent, both in trade count and in gross notional

 9 terms. So, you know, it's trading almost $400

 10 billion in June per month. The on-SEF percent

 11 share has also gone up. On trade counts it's gone

 12 up from 27 percent gross notional up to 40

 13 percent. So despite having very low clearing

 14 percentages below single digit percentages share in

 15 clearing, no MAT determination, on-SEF was still

 16 increased to almost 40 percent, which you put down

 17 to convenience or cost or, you know, other factors

 18 that aren't to do with the MAT determination that

 19 does exist for those products.

 20 So we'll move to interest rate fixed

 21 float swaps which are by far the biggest single

 22 instrument type, you know, in the set SDR volume
 55

 1 data. They are both required and permitted, so

 2 that there has been a MAT determination for some

 3 types. And looking at those volumes again we see

 4 volumes increasing from a low in February -- I

 5 think there were some package exemptions up to

 6 June, July. And again I think the best we can is

 7 that MAT submission has not harmed the volumes.

 8 The volumes have risen quite significantly from 1

 9 trillion a month to over one half trillion

 10 a month, but that's mostly with market

 11 expectations in trades and the fed raising rates

 12 and increased volatility then I guess in any MAT

 13 kind of process. In terms of the on-SEF

 14 percentages, so that has gone up from 40 percent

 15 to 60, as the package exemptions came to an end --

 16 but I guess it hasn't budged in about a year,

 17 right, so if you look at the chart, so by June --

 18 in July I would say it got close to 60 and it's

 19 hovered around that level to the market share.

 20 And I think that's primarily because there are

 21 many subtypes of that instrument type. So if I

 22 look at the on-SEF trades by far the biggest are
 56

 1 the spots starting, followed by IMM, followed by MACs

and the non-MAT

 2 trades, the biggest portion of forward start swaps

 3 and non-standard terms amortizers or non-par

 4 coupon type of trades, right. So this is looking

 5 at trade counts of those subtypes, and if you look

 6 at the individual percentages what we do see as

 7 we'd expect is that the MAT products have a very

 8 high on-SEF percentage, 90 percent and upwards.

 9 The non-MAT products include spot starting swaps

 10 and IMM swaps in different tenors and different

 11 dates. And for forwards and non-standards there is

 12 very little on-SEF share, right. So I think

 13 that's kind of what those figures tell us.

 14 If we think look at packages. Trades

 15 that are not just outright then here we see a very

 16 high on-SEF share. So spreadovers against

 17 treasuries, curve trades, and butterfly trades

 18 have an extremely high on-SEF share percentage,

 19 even forward non-MAT tenors and compression lists

 20 are different activities. So I think they get an

 21 idea on how the different types of swaps have

 22 different percentage shares on-SEF versus
 57

 1 off-SEF, yeah.

 2 I think –- slight digression -- some comments on

 3 improving the product data. And I think that's

 4 probably because I think I've used Part 43 as a

 5 big step forward in transparency in the U.S. for

 6 what's better than the OTC markets. But there's

 7 no real forum to feedback to improve that data

 8 that's been there for two-three years now, hasn't

 9 particularly changed in the source itself. So it

 10 would be helpful -- so what we often get asked,

 11 and we have many users that read our blogs and the

 12 data products, they ask us what we would like see

 13 in the data set is whether a trade is D2D or D2C

 14 in the marketplace, whether it's voice or

 15 electronic execution, whether it's an RFQ or clob

 16 or an auction or, you know, how it's transacted.

 17 The capping of notionals kind of introduces noise

 18 because I think for large trades because there is

 19 a time delay to make public that delay or to be

 20 sufficient to discuss full notional in our view of

 21 transparency, knowing where the clearing venue is.

 22 At the moment in the last few months it's become
 58

 1 clear that the clearing venue affects the price,

 2 whether it's a CME or LCH swap, so that ought to be

 3 we think, you know, on the SDR tape, execution

 4 venue, which SEF traded that product type, helps

 5 transparency, and being able to link trades to a

 6 package. So at the moment we have to enhance the

 7 data to do that analysis, and that creates some

 8 false positives in that analysis. So if that was

 9 unsourced data then it would make analysis

 10 transparency available in themarketplace.

 11 MR. MCGONAGLE: Let me -- just on that

 12 list -- sorry to interrupt. Are you presenting

 13 that list in priority order as well or is that

 14 just the list of --

 15 MR. KHWAJA: No, no. It's not priority

 16 order. I think it's all or nothing. (Laughter)

 17 MR. MCGONAGLE: Fair enough, fair

 18 enough.

 19 MR. KHWAJA: And it would be helpful I

 20 would say, yes, yeah. So I guess coming back to

 21 my main conclusion, the main point of the talk

 22 really, so if we look at CDX index product and
 59

 1 where there is a very standard contract and

 2 there's MAT determination, we've seen very rapid

 3 increase to over 90 percent of that volume, of

 4 that product on the share and no impact on

 5 liquidity of volume that we can see, right. FX

 6 NDFs, so even without a MAT determination we still

 7 see an increase to about 40 percent in gross

 8 notional terms of product, and that's for a

 9 product type where there is extremely low clearing

 10 percentages, single digits I would say clearing in

 11 the marketplace, and where there are significant

 12 cross-broader jurisdiction probably, you know,

 13 issues, you know. So I think to us that means

 14 it's convenient to be on-SEF for either costs

 15 reasons or just the plumbing is there or whatever

 16 the issues are, right. So the market itself had

 17 decided it makes sense to move those. And that

 18 has increased over time, right, so it's not been a

 19 static implementation and it's increasing I would say on

 20 the SEF. Dollar IRS I think is by far the

 21 biggest product of these two volume terms. So

 22 on-SEF has been stuck at 60 percent for the last 1
 60

 1 year I would say. So actually it moved there very

 2 quickly from 40 to 60 and it's remained at that

 3 level mainly because there are many sub-types that

 4 are not under a MAT determination. So I think

 5 it's possible that I guess some sets could

 6 consider making all tenors on spot starting at the

 7 moment, eight year, nine year, eleven year are not

 8 MAT, as is broken dates. Same with IMM and MACs.

 9 Now I think that would simply avoid the complexity

 10 of knowing which ones to exclude from a SEF,

 11 right. But normally you have to know that an

 12 eight year is not excluded, you know. Why bother?

 13 And there are a fair number of eight years on-SEF

 14 already, broken dates. And so that would add a

 15 few percentage to the on-SEF market share.

 16 But I think by far the largest portion

 17 of forward-starting interest rate swaps that are

 18 off-SEF, which again, you know, is largely a D2C

 19 type product, you know. And I think these have

 20 not shown any change at all in on-SEF transition

 21 volumes. So it's clear to us that only a MAT

 22 determination will move those. That has
 61

 1 complexity and that unique -- you need to capture

 2 two dates, a forward date and end date, but

 3 definitely they're priced off liquid spot

 4 starting products at the curve, right. So I'm not

 5 sure the same liquidity arguments that, you know,

 6 we discussed -- because they're priced on

 7 something else and that pricing is very standard.

 8 I guess, you know, it could be done in that sense,

 9 in our view. And I think that would make a significant

 10 change to the on-SEF percentage. So

 11 it would go upwards of 80 percent if forward start

 12 swaps were made MAT.

 13 So I think that's my last slide.

 14 Hopefully I've kept to 16 minutes. Not bad, yeah?

 15 Thank you.

 16 MR. SRINIVASAN: Quick question before I

 17 hand it over to Kevin. So you mentioned that guys

 18 need to sort of massage the data before you

 19 publish your reports. So could you talk to us

 20 about the quality of the Part 43?

 21 MR. KHWAJA: Yes. So in our view -- and

 22 we heard this quite a bit from people. People
 62

 1 often say quality is not good. You know, that's

 2 not our impression at all, right. So I would say

 3 that the on-SEF cleared data is extremely good

 4 quality for our sort of analysis, right, both in

 5 terms of volume and price. I think the off-SEF

 6 unclear data is probably less, you know. I think

 7 mainly because it has a far higher number of intra-day

 8 corrections are made to that data that we see that

 9 we process, and also the timely aspects. It's

 10 less timely made public, right. So I'm not sure

 11 we could trust the execution of the off-SEF clear,

 12 unclear trade, but on on-SEF cleared I would say

 13 it's extremely good quality of data.

 14 MR. SRINIVASAN: Kevin?

 15 MR. MCPARTLAND: Great, thanks. I'd

 16 first like to thank the Commission for arranging

 17 the Roundtable today. We appreciate the ongoing

 18 efforts to ensure the swaps market functions

 19 efficiently and continues to thrive. Again my

 20 name is Kevin McPartland; I'm the Head of Market

 21 Structure and Technology Research for Greenwich

 22 Associates. We are an independent, privately-held
 63

 1 researched-based consulting firm. Our clients

 2 span the entire market ecosystem, including large

 3 banks, real money investors, hedge funds,

 4 principal trading groups, financial technology

 5 providers, exchanges, and more. We interview

 6 about 60,000 market participants around the world

 7 annually and have been doing so for more than 40

 8 years. We used the quantitative and qualitative

 9 information collected from those interviews to

 10 examine the impact of market structure changes,

 11 regulatory, technological, and economic on the

 12 industry and its participants.

 13 So before we discuss ideas for change I

 14 think it's important to first examine more closely

 15 how far we've come in the past five years. In

 16 2010, interviews with over 100 U.S.-based investors

 17 trading interest swaps revealed that 17 percent of

 18 them were trading at least some of their volume

,

 19 electronically. In volume-weighted terms this

 20 amounted to nine percent of notional volume

 21 traded. The rest of that volume of course was

 22 traded via the phone, instant message, and email.
 64

 1 And remember we're talking about the dealer-to-

 2 client trading.

 3 If we fast forward to today, in 2015 our

 4 latest data, which was finalized just months ago,

 5 paints a pretty amazing picture of change. The 17

 6 percent of investment firms trading some volume

 7 electronically in 2010 has jumped to nearly two-thirds

 8 in 2015. Looking at asset managers specifically

 9 the increase is even greater, now up to three-

 10 quarters of those firms. To further that story 60

 11 percent of client trading by notional volume is

 12 doing electronically today, up from 9 percent in

 13 2010.

 14 The transformation of the CDS market is

 15 even more amazing. Five years ago, less than 10

 16 percent of investor trading volume in investment

 17 grade index CDS was done electronically, today

 18 that number has jumped to an astonishing 93

 19 percent. That is the highest rate of electronic

 20 trading reported in any market that we cover,

 21 including markets known for their electronic

 22 trading, like equities and FX. The result of this
 65

 1 change is a market with increased price

 2 transparency, more competition amongst liquidity

 3 providers, and increasingly better execution

 4 quality for investors. And while the trade life

 5 cycle has become more complicated, the automation

 6 and risk reduction is proving worth it.

 7 So while we're here today to talk about

 8 improving the process let's not lose sight of how

 9 far we've already come. Further expansion of SEF

 10 trading is inevitable, but it will be

 11 unnecessarily slow if the current made available

 12 to trade process remains as is. The first MAT

 13 submission was expansive, looking primarily at

 14 what was already clearable rather than what was

 15 already trading in an active way on screen. While

 16 this approached seemed logical on the surface,

 17 market participants quickly revolted claiming it

 18 was trying to move too far too fast, and it

 19 probably was. But the industry's reaction served

 20 to discourage other SEFs from pushing the envelope

 21 with their own submission for fear that trading

 22 would either leave or never come to their
 66

 1 platform. As such, the MAT submissions that

 2 followed were scaled back to a more manageable

 3 level and close copies of one another, the SEFs

 4 feeling safety in numbers. They targeted products

 5 that were already trading on screen, and as such

 6 would provide for a more organic way to move to

 7 mandatory SEF trading. Clients of the SEFs knew

 8 something had to be MAT’ed and saw these narrower

 9 submissions as a workable solution given their

 10 previous experience trading these products

 11 electronically.

 12 In the months since as we've seen SEF

 13 trading grow and investors become increasingly

 14 comfortable interacting with the street,

 15 electronically conflicting interests have

 16 continued to ensure that MAT submissions will

 17 occur infrequently if they ever occur at all.

 18 While we are in general a fan of allowing natural

 19 market forces to drive change, the uncertainty

 20 created by a jammed up MAT process cannot slow

 21 progress that might have otherwise occurred

 22 naturally. The original assumption was that SEFs
 67

 1 would want as much mandated for trading as

 2 possible given most derived revenue from volume,

 3 and so would make as many swaps available for

 4 trading as they could. The reality, however, is

 5 that as any good business owner would do, the SEFs

 6 don't do what they want, but instead do what is

 7 best for their customers. So while both the buy-

 8 and sell-side have adapted well to electronic

 9 trading in some interest rate swaps and index CDS,

 10 they'd still prefer to make the method of

 11 execution decisions on their own rather than being

 12 told what to do.

 13 To some extent this organic approach to

 14 electronic trading growth works, but the FX

 15 derivatives market is a prime example. Greenwich

 16 data shows that clients trade about one-quarter of

 17 their FX options electronically in the past year

 18 and about one-third of the NDFs electronically.

 19 Note that this does not include inter-dealer

 20 trading, only client trading as I mentioned

 21 earlier. Both products fall under the CFTC's

 22 oversight of course, but neither has yet to be
 68

 1 mandated for clearing or SEF trading.

 2 Nevertheless electronic trading in both is growing

 3 with investors telling us that they plan to do

 4 more electronically in the coming year. While

 5 organic adoption of e-trading works, the timetable

 6 for adoption is considerably longer than for a

 7 product mandated for SEF trading. As such, we

 8 believe that the CFTC should take control of the

 9 MAT process, citing which products should receive

 10 SEF trading mandates using an approach similar to

 11 the ones used to making clearing determinations.

 12 A set of metrics should be agreed upon to make

 13 these determinations, including current rates of

 14 e-trading adoption for instance. The impact on the

 15 current market functioning must also be closely

 16 examined. For instance of NDFs were mandated for

 17 clearing and SEF trading would the significant

 18 increase in costs associated with those

 19 requirements cause market participants to leave

 20 the market altogether. The impact on package

 21 transactions should also be accounted for. With our 

 22 experience over the past four years and the rates
 69

 1 market as a guide. Lastly, industry input should

 2 also be taken into account, particularly from

 3 liquidity providers, investors, and the swap

 4 execution facilities themselves. Allowing the

 5 CFTC to make the final determination as to what

 6 must be traded on SEF would take the existing

 7 conflicts out of the process and allow the

 8 implementation of Dodd-Frank to continue on at a

 9 reasonable pace.

 10 As we move forward let's not forget the

 11 benefits already gained from mandatory clearing

 12 and trading, and work together to ensure those

 13 benefits grow.

 14 Thanks again for your time.

 MR. Srinivasan: Darrell.

 15 DR. DUFFIE: Thank you. I appreciate

 16 the chance to be here this morning. First I want

 17 to alert you, I've been given a consulting

 18 assignment that if it had any effect on its

 19 opinions would tend to cause them to be more in

 20 the direction of a buy-side market participant

 21 with respect to the issue of made available for

 22 trade. However, I can assure that it hasn't
 70

 1 affected my opinions at all. My opinions are my

 2 own.

 3 So first I want to echo some of the

 4 remarks of Kevin about why this is important and I

 5 want to expand in both the areas of market

 6 efficiency and financial stability. We often

 7 think of the central clearing mandate as related

 8 to financial stability and the exchange trading

 9 mandate as related to market efficiency. And

 10 that's true, however these are very much

 11 co-determined. There are obvious

 12 complementarities here. A central counterparty is

 13 not going to set up business unless sit has a

 14 reasonable prospect that your stance on made

 15 available for trade is likely to bring business

 16 their way, and conversely an exchange operator or

 17 a SEF operator is -- the benefits to them of

 18 setting up trade are much diminished if there is

 19 no central clearing and straight-through

 20 processing. It's not to say it's impossible, but

 21 that direction of dependency is also very clear.

 22 I also want to echo Kevin's remarks on
 71

 1 my view that although it may be difficult, and

 2 there's going to be a lot of judgment calls I

 3 think you want to have your hand on the tiller

 4 pretty firmly in terms of what you make available

 5 for trade. And I think that echoes some of the

 6 remarks also of Heather Seidel from the SEC, and

 7 to the extent that I understood it the remarks

 8 from the representative from the FCA in that the

 9 conflicts of interest within the market itself

 10 will not necessarily always resolve themselves in

 11 favor of market efficiency and financial stability

 12 for the obvious reasons that Miss Seidel mentioned

 13 this morning. There are obviously SEF operators

 14 who prefer to have more made available for trade.

 15 And if it were left to them and not you, you might

 16 end up with inappropriately many or wrong things

 17 made available for trade. And on the other hand,

 18 if dealers were to have their first choice, it

 19 would be very natural that they would prefer not

 20 to be competing with each other for rents

 21 associated with intermediation. That's the first

 22 principle of economics.
 72

 1 The thing I want to spend most of my

 2 remaining remarks on is the fact that not all

 3 exchange trading is alike. And I know you're very

 4 aware of that, but there are additional

 5 complementarity and network effects here. For

 6 example, in terms of liquidity, whatever market

 7 structures are set in place first have a lot of

 8 persistence. It's very difficult to switch. So

 9 once you approve something, it's made available

 10 for trade, you've made entry much more difficult

 11 because liquidity goes where liquidity is.

 12 The second area is the fact that there

 13 are conflicts of interest and also just

 14 differences of views on the nature of the most

 15 effective matching methodology. So the sort of

 16 gut reaction to what kinds of SEFs are appropriate

 17 is well, we'll have RFQ and whenever the trading

 18 gets sufficiently active then the industry will

 19 figure out on its own that it should be trading in

 20 a central limit order book because you have sufficient

 21 in volumes. I think that view is naïve. First of

 22 all, not all central limit order books are the
 73

 1 same, and in the CDS market the buy-side has shown

 2 a lot of hesitancy in participating in central

 3 limit order books because of name give-up. And I

 4 think that's been well-remarked upon. And in an

 5 RFQ setting, if you are facing a dealer as a buy-

 6 side market participant you're -- as those are

 7 generally set up that way -- you'll have lost the

 8 opportunity to provide liquidity to other market

 9 participants yourself, that is to provide quotes

 10 to other and earn rents that way, and also to get

 11 more efficient trade matching. All-to-all anonymous

 12 central limit order books are a lot more efficient

 13 at getting matching. They don't have to be

 14 continual central limit order books if there is

 15 not enough volume, you can have batch trading.

 16 So in my view, you should be very open-

 17 minded to SEF designs and in my view it would help

 18 markets if you take your own views and not simply

 19 rely on what's presented to you, and I know you

 20 wouldn't do that, but take your own views on the

 21 efficiency of the trading environment that's being

 22 proposed by the exchange operator that wants to
 74

 1 set up a trade.

 2 On the specifics of FX derivatives, and

 3 coming back to the financial stability issue, I

 4 know it's water under the bridge, but academics

 5 are never -- had that much influence by water

 6 under the bridge arguments. We're talking about a

 7 much smaller amount of financial stability gains

 8 in the non-deliverable forwards area that was let

 9 go in the physical delivery exemption that was

 10 made. I want to reemphasize -- and I made a

 11 submission to Treasury on that laying out my

 12 views. There is every bit as much financial

 13 stability concern in that market as there is in

 14 the credit default swap market. And the fact that

 15 CLS is already taking care of the gross settlement

 16 risk, a point that's been overemphasized from the

 17 viewpoint of reducing financial stability

 18 concerns, is not really pertinent here. When

 19 we're talking about non-deliverable forwards there

 20 never was a gross settlement risk in the first

 21 place. It's all mark-to-market risk and it's

 22 quite big. When we get into the deliverable
 75

 1 currency FX market, the mark-to-market risk of that

 2 market is very large and it's much more highly

 3 concentrated than essentially any other derivative

 4 market in terms of market participants and the

 5 types of underlying financial instruments. Eurodollar

 6 short-dated FX deliverable forward is at

 7 extremely highly concentrated amount of

 8 counterparty risk. So I know that you don't

 9 control that mandate here at the CFTC, but as an

 10 academic I said I'm not influenced by the water

 11 under the bridge argument. I'm going to keep

 12 bringing this up as often as possible because it's

 13 a big concern.

 14 The other area in the FX market that you

 15 maybe are already thinking about is the renminbi.

 16 The renminbi as you know is becoming

 17 internationalized and that's going to have two

 18 effects on the value of exchange trading. The

 19 increased internationalization is going to reduce

 20 the need to have that be a non-deliverable

 21 product. It will become at some point

 22 increasingly a deliverable FX market as renminbi
 76

 1 become physically available throughout major

 2 financial centers to a greater degree. Going the

 3 other way, the non-deliverable market may grow

 4 substantially simply because the renminbi is

 5 becoming such an important international currency.

 6 So whatever you decide in the next short while

 7 with respect to RMB, you might want to revisit it

 8 in the near future based on how market conditions

 9 have changed with respect to the size and mix

 10 between deliverable and non-deliverable RMB.

 11 With that I'll stop.

 12 MR. SRINIVASAN: I'll wait for John to

 13 finish his comments before we come back with

 14 questions. John?

 15 DR. HULL: Okay, thank you, Sayee. Yes,

 16 we were joking earlier that as I'm the last to

 17 present I have the equity tranche. Anyway, I'd

 18 like to thank CFTC for inviting me here today to

 19 present my views. Much of my research over the

 20 last 30 years has concerned the over-the-counter

 21 derivatives markets, and I followed with great

 22 interest the changes that have taken place
 77

 1 following the 2009 G20 meetings and the 2010

 2 Dodd-Frank Act. I'm probably not as close to the

 3 mandatory trading rule as the other panelists

 4 here, so you can think about my comments as being

 5 more from, you know, 100 miles up.

 6 I'm going to focus a little bit on

 7 execution when I get on to the main part of my

 8 presentation. But let me first of all say that I

 9 generally support the changes that are taking

 10 place in OTC markets. I think reporting all

 11 trades for example to a central trade repository

 12 is clearly desirable. It's something that's long

 13 overdue, it gives regulators the opportunity to

 14 recognize situations where unacceptable risks are

 15 being taken, and it also creates more post trade

 16 price transparency. And, you know, most aspects

 17 of the new rules concerning the way standard

 18 trades between financial institutions must be

 19 handled are also in my view prudent.

 20 But the subject to today's meeting is

 21 CFTC's made available to trade rule; and as was

 22 pointed out earlier the swaps that are subject to
 78

 1 this rule at present are plain vanilla interest

 2 rate swaps in the U.S. dollar, euro, and sterling

 3 with nine standard maturities, standard payment

 4 frequencies, standard day count conventions,

 5 holiday calendars, and so on. And they also

 6 include five year credit default swaps on CDX IG,

 7 and iTRAXX.

 8 The first point I'd like to make is that

 9 the entities trading these products on SEFs are

 10 for the most part sophisticated financial

 11 institutions. Indeed as far credit default swaps

 12 are concerned I would -- you know, I think it's

 13 pretty much the case that only financial

 14 institutions trade credit default swaps, so I

 15 think that would certainly be true of credit

 16 default swaps. As far as interest rate swaps are

 17 concerned, of course non-financial end users do

 18 trade interest rate swaps, but non-financial end

 19 users when using swaps to mitigate risks are

 20 largely exempt from the MAT rule and will tend to

 21 trade directly with banks using ISDA master

 22 agreements and bilateral clearing. Banks with
 79

 1 assets less than $10 billion are also exempt from

 2 the rules. So again my point is that most of the

 3 entities trading the products are fairly

 4 sophisticated financial institutions. And I think

 5 this highlights and important difference between

 6 swaps and futures. The entities trading swaps on

 7 SEFs are a relatively small number of

 8 sophisticated market participants. By contrast

 9 there are hundreds of thousands of participants of

 10 course in futures markets. The CFTC doesn't need

 11 to protect swap markets in the same way that it

 12 protects futures market participants because after

 13 all it's the market participants themselves that

 14 created the market. They understand it very well.

 15 Another important difference between

 16 swaps and futures of course is the volume of

 17 trading. In swaps markets, trading takes place

 18 spasmodically. In futures markets it takes place

 19 continuously. And transactions in the swaps

 20 market, of course, when they do take place, are much

 21 larger. As mentioned earlier, swaps with nine

 22 standard maturities between financial institutions
 80

 1 are subject to the MAT rule, and those nine

 2 standard maturities, as was pointed out earlier,

 3 are two, three, four, five, seven, ten, fifteen,

 4 twenty, and thirty years, if I didn't miss any out

 5 there. But these have always been the most

 6 popular maturities. And statistics from Clarus

 7 show that there has actually been a marked

 8 increase in the use of non-standard maturities in

 9 the last few years. Non-standard maturities such

 10 as nine, fourteen, and nineteen years, and I think

 11 this can only be to avoid a swap being classified

 12 as a standard deal and subject to the MAT rule.

 13 There has also been a tendency for swap trading to

 14 move offshore. It's become well known that

 15 standard swap trades involving U.S. persons are

 16 less attractive than those that are free from the

 17 CFTC rules. For example, ISDA produced some

 18 statistics showing that euro interest rate swaps

 19 between European and U.S. dealers declined from

 20 25 percent of the total market to 9 percent of the

 21 total market. It seems to me that this is a

 22 potentially serious problem that the CFTC should
 81

 1 think about. We're in danger of another

 2 regulation queue-type situations where regulations

 3 causes a whole market to be lost to the United

 4 States. It's true of course that other

 5 jurisdictions are implementing their own version

 6 of SEFs and OTFs, but I think the very real danger

 7 is that the rules in other jurisdictions will have

 8 much more flexible execution than the rules in the

 9 United States.

 10 So I have to say that I'm forced to the

 11 conclusion that CFTC's regulation of SEFs should

 12 be more principles-based and less rules-based. It

 13 should allow optimal trading practices to evolve

 14 subject to broad principles specified by the CFTC.

 15 SEFs should be encourage to experiment with

 16 different trading models so that competition

 17 determines the best way of organizing trading.

 18 And this of course is what's happened over time in

 19 other markets. Pre-crisis trading in the swaps

 20 market had evolved to a point where it made

 21 extensive use of interdealer broker, and I think

 22 that in markets where trades take place
 82

 1 spasmodically, human brokers do seem to help

 2 efficiency and to be necessary to create

 3 liquidity. They're used in the bond markets,

 4 they're used in, for example, the real estate

 5 markets, to give a totally different market. And

 6 those are both markets where trading takes place

 7 spasmodically. When trading takes place

 8 continuously it can be completely automated so

 9 that virtually no human intervention is required.

 10 And it may be there will be technological

 11 developments allowing trading in less liquid

 12 markets such as swaps to be totally automated.

 13 But my impression is we're not there yet.

 14 And this I think creates a dilemma for

 15 the CFTC and, you know, regulators in other

 16 countries. You want full pre-trade price

 17 transparency, and this is clearly possible if

 18 trading is fully automated. But it seems that

 19 efficient trading for many swaps requires human

 20 brokers. Full trade price transparency is then

 21 not possible. It's not really realistic to

 22 require every voice interaction between a broker
 83

 1 and a potential trader to be made available to the

 2 market. And let's not forget that we do get full

 3 post-trade price transparency from the trade

 4 repositories. I think one can argue to some

 5 extent that pre-trade price transparency is icing

 6 on the cake and full pre-trade price transparency

 7 may be an unattainable objective, except for the

 8 most liquid swaps out there. And I think our

 9 objective is to embrace more than just the most

 10 liquid swaps in what we're doing here.

 11 Let me use an analogy here, and I

 12 apologize if you don't like this analogy, but when

 13 I sell my house I probably have access to the

 14 selling prices of other similar houses and all the

 15 asking prices, but I don't have access to all the

 16 bids and any backwards and forwards negotiations

 17 that go on between buyer and seller, nor do I have

 18 access to all the discussion that goes on between

 19 a real estate agent and his or her client. And as

 20 far as I know, no one has ever contended that this

 21 would be useful or necessary. I know this is a

 22 silly analogy, but derivatives markets are not
 84

 1 totally dissimilar from houses. They trade

 2 spasmodically. Some houses are almost perfect

 3 substitutes for each other and others have more

 4 unique features. So I think it would be dangerous

 5 to suggest that we don't need human brokers at

 6 all.

 7 There may be a compromise here though.

 8 I mean CFTC could allow human interdealer brokers

 9 but require any information they send to clients

 10 on actual trade prices or indications to be

 11 generally available to the market. The main

 12 beneficiaries of this would I suspect be end-users

 13 who for the most part I understand are trading

 14 outside SEFs. It would not be derivative dealers

 15 because they're pretty close to the market anyway.

 16 So we need to let optimal trading mechanisms

 17 develop by trial and error and competition.

 18 Trading platforms should develop organically, and

 19 will change through time as derivatives markets

 20 change. Because just think how quickly derivative

 21 markets have changed in the past and we can't

 22 expect them to just stay the same just, you know,
 85

 1 because we've regulated the trading practices. So

 2 some flexibility is required there.

 3 What other CFTC principles should there

 4 be? Clearly there should be a high standard of

 5 professional conduct. And I for some time

 6 advocated there should be a required professional

 7 certification for anyone who trades or brokers

 8 over the counter derivatives. Now may be the time

 9 to introduce that.

 10 I'd just like to mention one or two

 11 specific CFTC rules. I would actually abandon

 12 CFTC's rules requiring three requests for quotes,

 13 although I was interested that that's planned to

 14 be introduced in Japan. I think if two

 15 sophisticated financial institutions are prepared

 16 to trade with each other there seems to be no

 17 reason why the trade should not be allowed to

 18 proceed. In an illiquid market, we don't want to make

 19 trades more difficult than we have to. And to

 20 continue with my house analogy it wouldn't make

 21 any sense for me to require that I obtain three

 22 bids before I'm allowed to sell my house. I would
 86

 1 also abandon the 15-second time delay rule and the

 2 block trade rule. What I would do is allow

 3 individual SEFs to use those rules, but not

 4 require them to do so, and in that way we'll

 5 determine whether the rules are positive for the

 6 market in terms of the development of liquidity.

 7 So to conclude, there can be no argument

 8 that the over-thecounter derivatives markets serves

 9 a useful purpose in transferring risks in the

 10 economy and has done so for a long time. It's grown

 11 very, very fast and will continue to grow and

 12 adjust to the risks that are out there in the

 13 economy. And sometimes rash decisions have been

 14 made and then they've led to big losses. I think

 15 regulators should feel very proud that the extra

 16 margin requirements and trade repositories have

 17 greatly reduced systemic risks and increased post-

 18 trade price transparency. In terms of the overall

 19 health of the financial system, I would argue that

 20 regulating trade execution is less important than

 21 the other two things. In other words, it's less

 22 important than regulating trade reporting and
 87

 1 increasing margin requirements. And I would also

 2 argue that it actually requires quite a light

 3 touch because one doesn't want to interfere with

 4 liquidity. And we don't want to make it difficult

 5 for the best trading platforms to develop. Above

 6 all we don't want a swaps market to move away from

 7 the United States. The United States as we've

 8 heard is already ahead of other jurisdictions on

 9 mandatory trading. It should aim to also lead the

 10 world in optimal trading practices for swaps as it

 11 has for other financial instruments.

 12 Thank you.

 13 MR. SRINIVASAN: Lots of different

 14 themes out here. I had a question, and you can

 15 sort of take in any order you want to, maybe I'll

 16 start with Darrell. This is -- we had a panel a

 17 couple of months ago where there was a head trader

 18 from a buy-side firm saying that nothing

 19 ultimately has changed in the marketplace in terms

 20 of how they do business. They used to do D-to-C,

 21 they continue to do D-to-C. The form used to be

 22 called whatever, now it's called a SEF. The
 88

 1 shingle has changed but nothing fundamentally has

 2 changed. So if you think of, you know, some

 3 regulatory perspective and you want to sort of

 4 encourage the growth of the markets and trading on

 5 the regulated platforms, on the other side you had

 6 this kind of pre-trade transparency and

 7 potentially encouraging competition I guess. So

 8 I'm curious to hear where is the buy-side? There

 9 will be sort of conflicts of interest from the

 10 sell-side perspective, but where is the buy-side?

 11 And how do you get the buy-side to sort of come

 12 and sort of compete with the dealer? I just

 13 thought if you have any thoughts on it. Maybe

 14 I'll start with Darrell with the idea that you

 15 have this consulting gig on the side.

 16 DR. DUFFIE: Sure. Well, we could just

 17 go to history. In the early 1970s, the Chicago

 18 Board Options Exchange introduced -- put option

 19 trading on a board of trade. And within a year

 20 volumes had -- in fact on their first month of

 21 trading volumes exceeded any other prior year of

 22 OTC trading in that market. Why? Because of the
 89

 1 opportunity for everyone, buy-side and sell-side,

 2 to meet in the same venue and to compete with each

 3 other to provide liquidity to each other. Volumes

 4 soared and now there are many orders of magnitude

 5 greater than they ever were in the OTC market.

 6 Almost every other case in which exchange trading

 7 or aspects of exchange trading, like trading

 8 platforms with central limit order books were

 9 introduced, the same benefits were achieved in

 10 terms of lower trading costs, higher volumes.

 11 Volumes are important because they tell us how

 12 many potential trades where there were gains from

 13 trade actually occurred. So volume is a good

 14 measure, not completely satisfactory, but a good

 15 measure of the benefits associated with allowing

 16 exchange trading. In some cases the experiment

 17 has not been as successful as is it might have

 18 been. The CDS market which I mentioned earlier is

 19 a good one and I think that's because of the

 20 practice of name give-up at the only venue that

 21 has all-to-all competition for trading, which is

 22 the interdealer broker market for CDS. The buy-
 90

 1 side tends to shy away from that market because

 2 they're required to give up their name to whoever

 3 participates as sort of a randomly chosen

 4 counterparty as opposed to RFQ market which

 5 provides much less competition for that trading

 6 order, but you can control who gets the

 7 information about your trading interests. That's

 8 very important to the buy-side. As a result we

 9 have a two-tiered market. This is all described

 10 pretty well in a Managed Funds Association memo on

 11 this issue.

 12 So as I mentioned in my prepared

 13 remarks, it's not just whether we have exchange

 14 trading or not, it's the manner of exchange

 15 trading that largely determines how much everyone,

 16 not just the buy-side, benefits. I shouldn't say

 17 everyone, the dealers of course are going to lose

 18 some of the rents associated with providing

 19 immediacy, but more gains from trade and all of

 20 the other advantages of exchange trading that we

 21 know about, operational gains, lower margin

 22 requirements when you have central clearing, and
 91

 1 so on. So I wouldn't agree with the suggestion

 2 that it really doesn't matter that much, I think

 3 it matters quite a lot.

 4 MR. SRINIVASAN: John?

 5 DR. HULL: Well, your question was about

 6 end-users. And I mean there are obviously many

 7 different sorts of end-users out there. Some are

 8 financial institutions like insurance companies

 9 and so on, and fairly sophisticated, others are

 10 hedge funds, and some -- you know, those sort of

 11 end-users I think would be fairly comfortable

 12 trading on SEFs. But, you know, many of the,

 13 shall we say, corporate end-users who perhaps, you

 14 know, trade just a handful of derivatives every

 15 year would far rather not be bothered with all the

 16 overheads of using an SEF. It's just much easier

 17 to call up your friendly local banker and, you

 18 know, do the trade directly with the bank. On top

 19 of which of course, you know, the whole nature of

 20 the OTC derivatives market is that you can tailor

 21 the deal to meet the needs of the end-user. And

 22 this is particularly true for the small corporate
 92

 1 end-users. And so this is something they can do

 2 if they deal directly with a derivatives dealer,

 3 but much more difficult if they're using SEFs. So

 4 I think there is sort of two, you know, parts to

 5 the market. You know, we'll continue -- I don't

 6 think it's realistic to expect every end-user to

 7 want to use SEFs.

 8 MR. KHWAJA: Yes, I guess I think from

 9 what Kevin pointed out, I think the buy-side has

 10 moved to electronic trading and Kevin shared some

 11 figures on that. I guess they've remained --

 12 they've preferred to remain on RFQ model and trade

 13 with Bloomberg. I think that has been their

 14 choice, you know, for buy-side participants.

 15 Yes, I don't see -- I hope whereas the active

 16 order books we see in rates and credit are in the

 17 inter-dealer sort of trade activity. But I think,

 18 you know, that that's been a choice made by their

 19 participants, right. I guess over time we would

 20 see more firms do what Darrell talks about, you

 21 know, that aren't traditional market makers. And

 22 I think that is starting, and I think over time as
 93

 1 there is money to be made and more efficient I

 2 think it will happen. But I think it sort of --

 3 it will happen through economic benefits, right,

 4 as opposed to mandates.

 5 MR. MCPARTLAND: So I can take both

 6 sides of the, you know, nothing has changed

 7 debate. So on the going with nothing has changed,

 8 really what RFQ has done -- and this is how it

 9 started in the bond markets as well -- essentially

 10 it's automating the phone, right. So you still

 11 have the largest dealers interacting with the

 12 largest financial end-user products. They're just

 13 doing it, you know, clicking through rather than

 14 picking up the phone and calling three people.

 15 They're doing it through a machine. And I know

 16 I'm oversimplifying, but to some that is what

 17 happened, we've automated the phone. And I

 18 suspect that's where those comments came from your

 19 previous panelists.

 20 And then the other statistic that we

 21 look at quite closely in terms of a changing

 22 landscape, still over 60 percent of client trading
 94

 1 of interest rate derivatives in the U.S. happens

 2 through the top 5 dealers. So it's still very,

 3 very concentrated from a trading perspective on

 4 the bank side. The flip side to that argument is

 5 -- and I think Amir pointed this out quite well --

 6 is that the amount of data that we have in the

 7 market today is leaps and bounds beyond where it

 8 was in 2009. Even of course there are places

 9 where we would all like to see more information,

 10 but it's not even close to where we used to be.

 11 So I think that was a huge change.

 12 And then sort of to take the flip side

 13 of the sort of dealer concentration statistic, we

 14 are starting to see change there. Citadel

 15 Securities has been pretty open about their

 16 interactions in these marketplaces and that's --

 17 people are looking at that as an interesting test

 18 case to see if sort of non-traditional bank

 19 liquidity providers can come into these markets

 20 and really shake things up. And it seems to be,

 21 you know, it seems to be that they are starting to

 22 shake things up, so I think that's pretty
 95

 1 interesting.

 2 And then lastly, on the things have

 3 changed side is that -- and I think Darrell

 4 alluded to this -- is that the profitability of

 5 these businesses at the major sell side firms have

 6 changed dramatically. So a lot of the products

 7 that were once pretty profitable over the counter,

 8 they're now treated as flow products, they're

 9 traded electronically, they don't require as much

 10 human intervention. And in some of those cases,

 11 those sell side deals would prefer to further

 12 automate those outside classes because they're not

 13 making much money there anyway. So the less human

 14 capital they have to deploy to trade them, the

 15 better. So they're encouraged to trade more

 16 electronically in some of those places.

 17 The other point that I think is worth

 18 mentioning, and John spoke about this a bit, is

 19 yeah, we talk about the buy-side all of us often

 20 as a single thing. They're very, very different,

 21 right, real money, insurance, and hedge funds,

 22 they're very different entities with different
 96

 1 needs. We ask every year what is your preferred

 2 trading protocol on SEFs -- well, every year since

 3 there have been SEFs -- and still by and large

 4 they look for RFQ. And I think the buy-side has

 5 been collectively happy with the way things have

 6 been. That doesn't mean it's the best way and the

 7 way things should be, it just means that they're

 8 not feeling enough pain to really push for a

 9 change or to push for a new way of interacting

 10 with one another.

 11 MR. SRINIVASAN: I have one more

 12 question before that. I wanted to ask Chairman

 13 Massad or Commissioner Giancarlo, do you have any

 14 questions? So the question I had was in terms of

 15 we're all economists here, at least a few of us

 16 here, in terms of price discovery, right, so from

 17 your research on these markets -- and this is like

 18 to economists, which is what the state of the swap

 19 markets in terms of, you know, the quality of the

 20 price discovery process? If folks are comfortable

 21 with any of the status quo in some sense they're

 22 not feeling any pain then, you know -- so that
 97

 1 balanced against this other view and approach in

 2 some jurisdictions of the regulators taking a more

 3 active role. Regulators prior to Dodd-Frank were

 4 just not comfortable sort of defining, at least in

 5 the digital space, in terms of prescribing a market

 6 structure. We know what happened in the

 7 Reg NMS. So how do we sort of balance these

 8 two, right, in the sense that if firms are

 9 comfortable that the prices can reprocess and, you

 10 know, we should let the market find its own

 11 equilibrium in terms of the level of transparency

 12 that they are comfortable with, because how do we

 13 determine from our perspective or how do we

 14 facilitate -- what's our role in sort of improving

 15 the price discovery process? Once again, Darrell, if

 16 you want.

 17 DR. DUFFIE: Okay. With respect to the

 18 lessons of history, TRACE is probably the best

 19 experiment there. And the results are generally

 20 -- I'll characterize them because it's a messy

 21 literature -- but there are about 10 papers in the

 22 literature and to the extent that it's price
 98

 1 transparency, post-trade transparency has improved

 2 liquidity. It's been generally the case that bid

 3 ask spreads have lowered and that in the least

 4 liquid products the additional transparency has

 5 discouraged the provision of deep markets for some

 6 of the less, you know, high-yield bonds and so on.

 7 But I think we need to focus both on what -- well,

 8 we need to make a distinction between post-trade

 9 and pre-trade price transparency with respect to

 10 what they do. Both of them help the end user to

 11 know what the going price is and therefore to be

 12 in a better negotiating position with respect to

 13 the -- usually the dealer on the other side. That

 14 improves rents for the buy-side, makes better

 15 shopping opportunities. However, pre-trade price

 16 transparency does one additional thing. When you

 17 have sitting in front of you a number, let's say

 18 three or five executable price quotes and you can

 19 simultaneously hit the button on one of those

 20 five, that's a lot different than contacting in

 21 sequence five different dealers on the phone and

 22 then finding which dealer offered the best price.
 99

 1 It might have been the second one. You go back to

 2 that dealer and you say okay, I'll take the price

 3 that you offered me five minutes ago and then the

 4 dealer may say well, you know what, markets have

 5 moved in the last two or three minutes and it will

 6 be very difficult on average to contract on the

 7 same price that you got the first time around. So

 8 pre-trade price transparency short circuits that

 9 problem and forces whoever is providing quotes to

 10 compete against other simultaneously, and that

 11 provides better opportunity for competition to

 12 work and to create more trade.

 13 MR. SRINIVASAN: John?

 14 DR. HULL: Okay, but we don't have pre-

 15 trade price transparency in TRACE or bond markets.

 16 So I mean I like the TRACE analogy. I mean I

 17 think it's a really good example of how more price

 18 transparency has made the market more liquid. But

 19 it was actually post-trade price transparency, and

 20 I think post-trade price transparency is much more

 21 important than pre-trade price transparency. And

 22 that was one of the points that I made in my
 100

 1 earlier presentation.

 2 MS. MARKOWITZ: Dr. Hull, I just have a

 3 follow up question to something that you said.

 4 When you were talking about things that we should

 5 abandon one of the things you had said was the 15

 6 second time delay rule and blocks. And since

 7 those are two methods that we've allowed in our

 8 rules as an exception to trading, you know,

 9 competitively, I guess I would like you to flesh

 10 out what your thought process is on that.

 11 DR. HULL: Yes, the 15-second time delay

 12 rule I mentioned and the block trade rule, I mean

 13 were the two things.

 14 MS. MARKOWITZ: Yes.

 15 DR. HULL: I mean I understand the need

 16 for the block trade rule in other markets, you

 17 know, the futures markets and the equity markets.

 18 I'm sort of less clear about whether it's really

 19 necessary in the swaps market, the trades are so

 20 big anyway. So somebody comes along, wants you to

 21 do a trade that's, you know, five times or ten

 22 times a sort of average trade. Is it necessary to
 101

 1 handle that one differently? I think my point was

 2 maybe it is, maybe it isn't, but I would let the

 3 market determine that. I wouldn't legislate it.

 4 So I think that was the point that I was trying to

 5 make as far as the block trade rule. I wasn't

 6 sort of necessarily going to throw it out of the

 7 window, I was just saying that I wouldn't be too

 8 prescriptive about it. And, you know, basically

 9 the same sort of thing about the 15-second time

 10 delay rule. I mean it may well be that that

 11 actually does help the market function better, but

 12 if it does then SEFs are going to implement it

 13 anyway. So I wasn't really saying these are bad

 14 rules, but I would say that I wouldn't necessarily

 15 impose these rules on the market. I'd let the

 16 market determine whether it wants to use those

 17 rules or not.

 18 MR. KHWAJA: I think you can comment, so

 19 I think -- I'm sorry if I jump -- so I think it's

 20 really a 15-minute time delay to --

 21 DR. HULL: Seconds.

 22 MR. KHWAJA: Fifteen seconds?
 102

 1 MS. MARKOWITZ: He's talking about

 2 crosses.

 3 MR. KHWAJA: Oh, cross? Okay.

 4 DR. HULL: So did I say 15 minutes? I

 5 mean 15-seconds time delay rule.

 6 MR. KHWAJA: Well, I thought the

 7 argument given by the industry was that they need

 8 that time to warehouse). On a very large size,

 9 and not even that time delay mean people being

 10 aware and acting against you that would impact

liquidity.

 11 MR. SRINIVASAN: My timekeeper is

 12 saying that time is up. Thanks once again to the

 13 four of you. Thank you.

 14 MR. SMITH: We will take a short break

 15 until 11:15 and then we'll begin with Panel Three

 16 -- or 12:15, excuse me. I'd like to thank all of

 17 you for participating on our panel and we'll start

 18 the next one at 12:15.

 19 (Recess 12:05 p.m.)

 20 (On Record 12:20 p.m.)

 21 MR. SMITH: All right. I will now begin

 22 Panel Three. Panel Three will focus on the MAT
 103

 1 process and prospective changes that could

 2 potentially enhance this process. In this panel

 3 we will discuss numerous concepts including who

 4 should make a MAT determination, the appropriate

 5 criteria for making a MAT determination, as well

 6 as product specific considerations.

 7 Before I begin the panel I'd like to go

 8 around the table and have each of you introduce

 9 yourselves, as well as the firms you will be

 10 representing today. And I'll start with you, Tom.

 11 MR. BENISON: Tom Benison, J.P. Morgan.

 12 MR. BERGER: Stephen Berger from

 13 Citadel.

 14 MS. CAVALLARI: Lisa Cavallari from

 15 Russell Investments.

 16 MR. FRIEDMAN: Doug Friedman from

 17 Tradeweb.

 18 MR. HIRANI: Sunil Hirani from trueEX.

 19 MR. JOHNSON: Vincent Johnson from BP

 20 representing ISDA.

 21 MR. LEIZ: Arthur Leiz from Goldman

 22 Sachs Asset Management.
 104

 1 MS. PATEL: Angela Patel from Putnam

 2 Investments.

 3 MR. SENFT: Dexter Senft from Morgan

 4 Stanley.

 5 MR. SHIELDS: Bill Shields from GFI

 6 Swaps Exchange, representing WMBA.

 7 MR. STEINFELD: Ron Steinfeld,

 8 MarketAxess.

 9 MR. SULLIVAN: Wally Sullivan, Javelin

 10 Capital Markets.

 11 MR. TSAI: Edward Tsai, Credit Suisse.

 12 MR. SMITH: All right. Thank you all

 13 for being here today and agreeing to participate

 14 on our Roundtable. As I mentioned before when we

 15 spoke about this panel-- I will throw out

 16 questions; you're welcome to respond and jump in

 17 as you feel as appropriate. In order to signal

 18 that you'd like to participate in a question

 19 please turn your placard to its side so that I

 20 know that you want to participate. I will begin

 21 with the first question.

 22 Should the prescribed approach for
 105

 1 applying the current MAT factors and MAT

 2 determination be modified? Lisa?

 3 MS. CAVALLARI: The short answer is yes.

 4 (Laughter) It should be modified.

 5 I think before I continue, and Mr.

 6 McPartland did this earlier in a

 7 prior session, we've undergone a

 8 tremendous amount of change within

 9 since the SEFs have been up and

 10 running in February 2014. And I

 11 think we have to recognize that a

 12 lot of progress has been made and

 13 that the buy-side, the sell-side,

 14 the SEFs, and the derivative

 15 clearing organizations have all

 16 come together to get us to this

 17 particular point in time. So I

 18 appreciate the opportunity to be

 19 here today to speak about what

 20 potential improvements could be

 21 made to the process. I can only

 22 imagine that perhaps we didn't
 106

 1 envision that we're at this state

 2 in the process without additional

 3 MAT determinations, for example,

 4 being applied for self

 5 certification since that time. I

 6 do think that because we have a

 7 subset, because we have over the

 8 past close to 35 years of OTC

 9 trading, we've taken that and we've

 10 driven a subset into what should be

 11 cleared and then further refined

 12 that into a subset of MAT or SEF

 13 required trades. Those particular

 14 trades much like the clearing

 15 determination does I believe --

 16 representing Russell Investments --

 17 require a little bit more of

 18 perhaps CFTC -- I don't want to say

 19 intervention, but perhaps the

 20 invisible hand of setting off that

 21 process. I know right now that it

 22 is not written that way, but I do
 107

 1 believe that we could be better

 2 served doing that.

 3 I think another point to make is that

 4 although we haven't seen it in subsequent

 5 applications because arguably there haven't been

 6 very many, just having one factor apply to be

 7 discussed in an application is probably too small

 8 a number shall I say.

 9 So those would be my comments on that

 10 particular question.

 11 MR. SMITH: Sunil? And thank you for

 12 your comments, Lisa.

 13 MR. HIRANI: Yes, thank you. So, you

 14 know, I think there were six factors to consider.

 15 And I think if you go back to when the first MAT

 16 application was filed the factors are clearly --

 17 you know, they're very subjective and so it leaves

 18 a lot of interpretation. It's a one-sided filing

 19 by the venue without really any incorporation of

 20 market feedback or regulatory oversight. So that

 21 I think was a reason. So I think some people may

 22 remember, I think we filed, you know, the second
 108

 1 MAT application and I think the reason we filed it

 2 as narrowly as we did is because, you know, there

 3 is a lot of barriers, there are a lot of hurdles

 4 to actually onboard, and so from our perspective

 5 filing a very thin MAT application would give both

 6 the dealers, the buy-side, and the venues an

 7 opportunity to actually onboard rather than having

 8 a rush of, you know, a flood of activity.

 9 The other thing that struck us was that

 10 the technological readiness of the venues and how

 11 that correlated with what the MAT application

 12 actually, you know, articulated. So I think those

 13 factors need to be taken into consideration as

 14 well.

 15 MR. MCGONAGLE: So, Sunil, I'd -- so I'm

 16 jumping because you said I could jump in. You

 17 know, you mentioned the technology. I think one

 18 of the questions that had come up during the

 19 initial MAT filings were was the market prepared

 20 -- either market participants or buy-side prepared

 21 to come in, but in particular were the SEFs able

 22 to handle the business. And, you know, just in
 109

 1 your reaction about how the SEFs handle the

 2 business and, Doug, you can lift your thing too

 3 because I -- when those MATs were filed and, you

 4 know, responding to those comments we did -- you

 5 know, we proceeded with some staging, but we

 6 didn't put off because of questions or concerns

 7 about the technology capability of the facility.

 8 So I wonder what opinions are there.

 9 MR. HIRANI: Yes, so, you know, look I

 10 think certainly today, you know, venues like truEX

 11 can handle a broader set of instruments than what

 12 is currently MAT’ed. But I think there is another

 13 dimension which is on boarding of the dealers. So

 14 in two and a half years, you know, we have only

 15 been able to -- and just in the beginning of this

 16 month, two of the top five dealers -- and then in

 17 two and a half years three of the top five

 18 dealers, so we're still missing two out of the

 19 five dealers. In aggregate we've been able to

 20 onboard seventeen. So it is a long process and part of

 21 it was we did our MAT application knowing it was

 22 going to be a longer process, and because if you
 110

 1 MAT everything, you know, you're not going to have

 2 a competitive marketplace because all the business

 3 is going to go to the incumbents and there won't

 4 be an opportunity for, you know, competitive

 5 venues to exist. So that -- you know, and even

 6 today I don't think we certainly feel comfortable

 7 to file any additional MAT applications because we

 8 don't have all the top five dealers. I think

 9 Kevin I think made a point, the huge concentration

 10 in these markets with the top five dealers and so

 11 I think, you know, when we have an additional

 12 three dealers I think we would certainly feel

 13 much, much more comfortable to consider it. But

 14 we are certainly not in a rush to file any MAT

 15 applications at this point, even though our

 16 technology can handle any currency, any date, any

 17 number of line items, near risk, old risk, you

 18 know, any combination there. Just because we're

 19 technologically ready does not mean the dealers,

 20 you know, are ready or the buy-side have the

 21 resources to code up to everything.

 22 MR. SMITH: I'll go to Doug to respond
 111

 1 to Vince's question and then I'll come to Dexter

 2 to respond to the original question.

 3 MR. FRIEDMAN: Thank you for the

 4 opportunity to be here. When Tradeweb was

 5 assessing their MAT submission we were looking --

 6 and we had the benefit of looking at our

 7 historical swaps trading since 2005. And we took

 8 the responsibility of filing our MAT very

 9 seriously and we also -- what we focused on is

 10 what were we offering electronically already, what

 11 was being readily priced and traded

 12 electronically, and applying that to the six

 13 factors that were there. And so we were in

 14 essence assessing our own technological

 15 capabilities as a barometer for what we thought

 16 was readily available and ready to be traded in a

 17 mandatory fashion. And we also were offering --

 18 we offer electronic trading in a wider set of

 19 instruments than we submitted for MAT, but when we

 20 looked at the historical data and saw what was

 21 most actively and readily traded, that was what

 22 sized the list for us. And so I do think
 112

 1 assessing the SEF's technological capabilities is

 2 extremely important because in some ways it's

 3 telling about what the marketplace may be ready

 4 for, and I think when we did it we also looked at

 5 all six factors, not just one as any deciding

 6 factor on what we were going to MAT. And so I

 7 think it's important and, you know, we'll

 8 obviously talk further today about ways in which

 9 the process can be improved. But we also beyond

 10 the six factors looked at hit rates, we looked at

 11 quote ratios, we looked at time to respond, time

 12 to quote. And so it wasn't just the six factors

 13 that were important to us, we wanted to make sure

 14 that there were other metrics behind it that made

 15 sense.

 16 MR. SMITH: Dexter?

 17 MR. SENFT: I think it's easy for many

 18 of us on this table to trivialize the process that

 19 occurred a couple of years ago when you at the

 20 Commission had to figure out a place to start. I

 21 was sitting in this room, possibly in this exact

 22 seat, you know, predicting that the MAT rules as
 113

 1 described were going to lead to a race to the

 2 bottom and everything would be MAT’ed and it would

 3 be utter chaos. And exactly the opposite has

 4 happened. So we've had consequences that, you

 5 know, some of us after giving it a lot of thought

 6 were just plain wrong about. So, look, I applaud

 7 the Commission for starting someplace, but I

 8 further applaud the Commission for bringing it

 9 back to the table because we now have real

 10 experience in the market, we've seen what happens,

 11 we're in a better place to predict where things

 12 will go if we tweak something, and I look forward

 13 to getting into that dialogue.

 14 MR. SMITH: Thank you, Dexter. Angela?

 15 MS. PATEL: I want to comment on

 16 something Sunil had raised with regards to the

 17 availability of technology. It's all well and for

 18 the SEFs to be ready to trade and for them to have

 19 some connectivity to the dealers, but without

 20 involving the asset managers, customers, CCPs, and

 21 FCMs in the process it's impossible for us to be

 22 ready without chaos on day one. So while there's
 114

 1 not been utter chaos I would argue that the

 2 initial launch of interest rate swaps and MACs,

 3 spot starting swaps, there was chaos because

 4 dealers didn't know how to price them. And as we

 5 continue to move forward and we see package relief

 6 coming up I think that the package relief that

 7 came up in May is a good example of the SEFs

 8 having the technology for the swap leg, but not

 9 having the technology available for the other two

 10 mortgage-backed asset legs that we're supposed to

 11 be trading in package space. So right now,

 12 Tradeweb actually recently allowed us the ability

 13 to trade pools so we could trade pools versus a

 14 spot starting swap, and we can trade TBA versus a

 15 spot starting swap. We cannot trade CMOs, which

 16 were impaired by the fact that they can trade as a

 17 package. Moreover at the dealer community they

 18 want to price them all as spots because it's

 19 easier for their TBA desk. So we have lost the

 20 ability to trade a MAC coupon with any

 21 mortgage-backed package.

 22 So I think that when we're looking at
 115

 1 the process and what needs to be happening, the

 2 treatment of packages has to be evaluated and

 3 looked at in terms of units of risk, rather than

 4 taking an asset that can on its own trade well in

 5 an electronic environment and then pairing other

 6 assets that are associated with it.

 7 MR. SMITH: Ed?

 8 MR. TSAI: Going back to the original

 9 question of the criteria and the factors and what

 10 should be added, we agree with the point that was

 11 made earlier that all the factors should be

 12 mandatory as part of the consideration; currently

 13 just one is required. I believe most of the SEF

 14 MAT determinations considered all the factors, but

 15 we wouldn't want some situations arise where a

 16 particular SEF decides to just address one and

 17 then that product became MAT.

 18 In terms of the additional factors, the

 19 technical abilities we completely agree with.

 20 Spoke with many dealers and it's not only the

 21 technical capabilities of the SEF themselves, but

 22 also the market participants and the various
 116

 1 market enablers that are part of the swap chain

 2 that will determine whether or not the launch of a

 3 new MAT product is going to happen on the smooth

 4 MAT or not.

 5 Other factors which should be considered

 6 and they're elaborations of the already six listed

 7 factors, but continuity of the factors across, for

 8 example, the particular curve. I think most of the

 9 MAT determinations did break up the product set

 10 into the most liquid parts of the curve for

 11 example, but that should be specified as a

 12 requirement just to avoid the situation where a

 13 particular asset class in total is made MAT and

 14 then the particular parts of it which are liquid

 15 then are consequently made MAT. And we think a

 16 lot of this can be addressed as was suggested

 17 earlier through some formalized public comment

 18 process to ensure that all the concerns of the

 19 various market participants and the public at

 20 large are factored into the final decision of MAT.

 21 MR. SMITH: Thank you, Ed. Arthur?

 22 MR. LEIZ: So going back to Vince's
 117

 1 question about readiness from a technology

 2 perspective. I think that there is a lot lost in

 3 translation when you speak to specific SEFs about

 4 their readiness. And I mean no disrespect to the

 5 SEFs sitting alongside me, but I think that they

 6 tend to portray a rosy picture of their readiness

 7 and the market's readiness. What I would call

 8 readiness is having a minimum number of dealers

 9 connected to their platform systematically,

 10 whether it's via an API, to be able to price the

 11 instruments that are coming across real time,

 12 copying and pasting, you know, the instruments out

 13 into a spreadsheet to bring into their risk

 14 system, that's not systematic. That's really just

 15 -- might as well be using Bloomberg, you know, IB.

 16 So I also think that you need to ensure that the

 17 buy-side is connected. What we found is that the

 18 resourcing that it takes to get every single

 19 instrument -- and it's not just, you know, broad

 20 brush IRS versus CDS, it's IRS, it's dollar, euro,

 21 yen, sterling, and so on. Each one of those, you

 22 have to ensure that messaging protocol matches
 118

 1 what you're intending to trade. It's quite a bit

 2 of testing and it's a lot of resourcing on the

 3 technology side to make sure that we're ready.

 4 And I think that, you know, MAT applications need

 5 to be viewed from that lens as well in addition to

 6 the other criteria.

 7 MR. SMITH: I'm going to go Lisa and

 8 then Vincent and then I'm going to move onto the

 9 next question.

 10 MS. CAVALLARI: I don't think what

 11 Arthur and Angela said can be overemphasized

 12 enough in terms of the readiness, specifically the

 13 buy-side. And I want to sidestep sort of the

 14 issue of whether or not SEFs pose a rosy picture

 15 in terms of what they're capable of for a moment,

 16 just dealing with specifically the readiness on

 17 the trading desk that I am a part of. To Arthur's

 18 point it's just -- even if we're trading

 19 electronically you're talking about bringing

 20 something into a SEF environment where there are

 21 more checks and things that need to be done in

 22 terms of connectivity and making sure that we're
 119

 1 compliant with all of the rules. And that is in

 2 the beginning days -- Angela alluded to the chaos

 3 -- I just wanted to make it through the first six

 4 months of SEF trading without having to deal with

 5 an issue either from the executing broker, the

 6 FCM, the SEF, Russell's own internal trading

 7 platforms. I just wanted one error that I had

 8 already seen before so I knew what to do, which

 9 isn't to say that we didn't get to where we were

 10 all supposed to be going. But it was a heavy

 11 lift. And so anytime we're adding a new account,

 12 a new type of instrument, you know, we go through

 13 the same sort of -- we call it a SWAT team for the

 14 SEF and swap process. That's a lot of acronyms,

 15 but all together it's a lot of people coming

 16 together to make sure that that can move smoothly.

 17 And that's because we're at the ground floor of

 18 where the rubber hits the road, and sometimes that

 19 can be difficult. So we're not in any hurry to

 20 necessarily add instruments to that process unless

 21 they are already liquidly traded on our current

 22 platforms that have desktop real estate and that
 120

 1 we feel are appropriate for that environment.

 2 MR. SMITH: Thank you, Lisa. Vincent?

 3 MR. JOHNSON: I just wanted to quickly

 4 address in taking some of the comments by many of

 5 the other panelists to show that I think there are

 6 a lot of various views, and this is something from

 7 ISDA that was addressed in the petition filed last

 8 month for more of a pushing to allow market

 9 participants, all market participants to

 10 participate in the process. I think you hear

 11 there are various issues that are addressed in

 12 here and I think if there is a process, you know,

 13 with the various criteria about the technology

 14 perhaps certification from the SEFs on their

 15 capability to handle the transactions, and when

 16 you take that -- and I'll be pushing for probably

 17 at a later point for the Commission to make that

 18 decision on the SEF's, but part of that decision

 19 making process is to make sure that the public has

 20 an ability to comment on and process. And I think

 21 the more information that the SEFs can provide

 22 during their determination, and that part of that
 121

 1 SEF determination with that information going back

 2 to the Commission and analysis and being released

 3 so the public can comment on it will help the

 4 process.

 5 MR. SMITH: Thank you, Vincent. The

 6 next question is, is how many factors should be

 7 taken into consideration in making a MAT

 8 determination and can you apply these factors if

 9 you're evaluating a group of swaps or an

 10 individual swap?

 11 Stephen?

 12 MR. BERGER: Thank you, Roger. So I

 13 interpret this as a question, and not too get too

 14 into the weeds, but I think this is a question

 15 about the “as appropriate” language in the MAT rule

 16 as well as the fact that the six factors are

 17 joined by the word or and not and, and so I think

 18 that's what folks are focusing on.

 19 So just setting aside for a moment the

 20 question about whether the MAT determination

 21 should apply on the outright or package level,

 22 which is a topic that I think we'll probably get
 122

 1 into a little later, I actually do think it's fair

 2 how the language is currently constructed. I

 3 don't read the language to say that you could only

 4 choose one and run with it. I think you have to

 5 consider all six and I think most of the MAT

 6 applications that came in did. And I also think

 7 that there are circumstances in which there are

 8 some that are more relevant than others. So I'm

 9 generally comfortable with it. I completely agree

 10 with, you know, Vincent's comments here that the

 11 public comment process that existed the first time

 12 around was vital in terms of refining things and

 13 getting it right. It's not clear, and I think

 14 we'll discuss this later, what authority the

 15 Commission had in that of the comment period to go

 16 back and change the MAT applications, but at least

 17 the way it panned out, MAT applications were

 18 revised subsequent to the public comment process

 19 and the market dialogue that ensued. I think it

 20 would be helpful to formalize that and I know that

 21 there are two different mechanisms that can be

 22 used by the SEFs to do their rule filings and
 123

 1 different actions that the Commission can take to

 2 trigger that comment period, but it would be

 3 worthwhile I think refining the process to ensure

 4 that comment period can occur.

 5 Just to kind of give a little more

 6 context to the comment I made about, you know, the

 7 “as appropriate” and why some factors may in certain

 8 instances be appropriate and in others not be

 9 appropriate. I think if you look at something

 10 like, you know, the first factor talks about ready

 11 and willing buyers and sellers, and then the

 12 second two are more around historical trading

 13 volume. And I think you do have products in the

 14 swap marketplace where there are, you know,

 15 continuous bids and offers being quoted, either

 16 firmly and indicatively and there's an ability to

 17 trade the product at any given point in time, even

 18 during times of market dislocation, but it could

 19 be a product that just happens to not trade, you

 20 know, 100 times a day, right. So you do have

 21 instances where, you know, there is adequate

 22 liquidity, even if there's not, you know, tons of
 124

 1 trades occurring that product each. I think the

 2 bid-ask spread one can also cut both ways.

 3 Sometimes wider bid-ask spreads are indicative of

 4 the fact that there's not enough competition in

 5 the trading of a given product, not that the

 6 product is illiquid. And, you know, the last

 7 criteria that talks about resting firm and

 8 indicative bids and offers, in the swap

 9 marketplace today I don't think there are firm

 10 bids or offers, you know, out there that are

 11 accessible, at least on the D-to-C platforms.

 12 Almost everything is quoted on an indicative

 13 basis.

 14 So that said I think people have already

 15 identified a number of additional factors that are

 16 other ones that could be added as important

 17 considerations, but I don't necessarily favor

 18 changing the ”or” to an “and,” and saying that all six

 19 have to be surpassed in every instance, and that we

 20 should have objective numerical thresholds for

 21 every single one, et cetera. I don't think that

 22 provides the flexibility we'll need going forward.
 125

 1 MR. SMITH: Thank you, Stephen. And we

 2 will go to Dexter and then Tom.

 3 MR. SENFT: We thought that there were

 4 two really important factors that needed to be

 5 considered we would argue you can drop a

 6 couple of others out, so six seems like about the

 7 right number. But it's critical to us that the

 8 market be resilient. And what that means is that

 9 it's important that trading continue if a

 10 particular player, be it a SEF or a liquidity

 11 provider, has technology problems and is out of

 12 the market. So we would like to see the

 13 consideration, a very important one, that multiple

 14 SEFs trade the product. If at least two SEFs

 15 trade the product then the market, you know, can

 16 survive the removal of either one of them. And

 17 likewise -- and multiple just means two or more.

 18 So it's not a high bar, but it's an important one.

 19 Likewise those two SEFs should have at least two

 20 liquidity providers, so if a liquidity provider

 21 goes down there's still a market being made.

 22 MR. BENISON: So just going back to
 126

 1 Steven's comments and Vincent's earlier on public

 2 comment, we would agree it's important to have

 3 time for public comment on this. In terms of

 4 which factors should be considered I think

 5 whatever set of factors are finalized and decided

 6 on, and I would agree with Dexter that looking at

 7 having more than one SEF trading is important --

 8 more than one platform trading is important, you

 9 should analyze all the factors. And to Stephen's

 10 point, you may analyze one factor and say, you

 11 know, while on its face maybe this factor doesn't

 12 look like it is too supportive, there may be a

 13 reason why in the case of a particular swap that

 14 factor doesn't matter as much, but the analysis

 15 should be done, and hopefully done with, you know,

 16 as much objective data as possible.

 17 And I think, you know, the last point I

 18 would make is to the extent you're applying, you

 19 know, for one decision across a group of swaps I

 20 think you want to make sure that the factors are

 21 consistent across that group of swaps so that you

 22 wouldn't have, you know, swaps where there was a
 127

 1 variety in terms of each factor of how it applied.

 2 MR. SMITH: Thank you, Tom. This has

 3 already been brought up a couple of times

 4 including -- Doug mentioned it that there are

 5 additional factors that, you know, for example

 6 Tradeweb considered when they made their MAT

 7 determination. Are there additional factors that

 8 should be taken into consideration when making a

 9 MAT determination? Tom?

 10 MR. BENISON: Yes, so I think the one

 11 was already mentioned about how many platforms is

 12 it available to trade on. We think that's

 13 important. Well, I shouldn't say available to

 14 trade, but is it actually trading on. I also

 15 think changes in liquidity through the cycle. So

 16 when you're looking at liquidity often times

 17 you'll we'll see in a product you might have a

 18 spike in liquidity for a certain period of time,

 19 and then that liquidity goes away. I'm not sure

 20 what you want to have is, you know, a product

 21 popping on due to some unique factor that's

 22 causing liquidity in that time and then have it
 128

 1 drop off later. So having some understanding of

 2 how that's going to -- you know, is it going to

 3 maintain that liquidity over time before it's

 4 MAT'ed.

 5 And I think the length of time of

 6 sufficient trading volume, you know, it's related

 7 in the swap or group of swaps in advance of a MAT

 8 determination. So, you know, do you have

 9 sufficient liquidity through the cycle and has it

 10 been active on an electronic platform for some

 11 period of time before you MAT it. And people have

 12 already talked quite a bit about the operational

 13 readiness of SEFs so I won't go through that

 14 again, but we think that's an addition.

 15 MR. MCGONAGLE: So there was some

 16 commentary in the MAT preamble that talked about

 17 if you're looking for liquidity factors, wouldn't

 18 necessarily focus on your platform if you're a

 19 SEF. They're looking at transactions as they

 20 occur on other platforms, but also transactions

 21 occurring OTC. And in order to help gauge

 22 liquidity, the conversation has been focused more
 129

 1 on what trading we're on on-SEF. I'm just curious

 2 as to evaluation of trading activity occurring

 3 away from the facility historically in making a

 4 determination or submission for consideration that

 5 a product should be MAT.

 6 MR. BENISON: Yes, I would think that's

 7 relevant. And I guess my comments sort of assumed

 8 that you would be looking at overall volume. And

 9 then as a subset of that I think you do want to

 10 look at it and say is there sufficient activity,

 11 you know, on these electronic platforms to then

 12 make the leap to say that it should all move

 13 there.

 14 MR. SMITH: Thank you, Tom. Arthur?

 15 MR. LEIZ: I believe the Commission

 16 asked for public comment on whether a listing

 17 requirement was necessary and I would argue, and

 18 ultimately I believe you determined that it

 19 wasn't, but I would argue that a listing

 20 requirement ahead of a MAT application, meaning a

 21 listing of a product on a SEF ahead of a MAT

 22 application should be a requirement. It would
 130

 1 demonstrate that the SEF is capable of handling

 2 connectivity, the instrument, and the trading

 3 protocols. And it would also allow the Commission

 4 to evaluate, you know, whether this instrument

 5 potentially should be MAT'ed. I think it's

 6 interesting to look at volume profiles for these

 7 products outside of electronic trading, but I

 8 would almost argue that, you know, we should be

 9 looking solely at the volume profiles of the

 10 products as they're electronically traded because

 11 that's going to be how we're going to have to do

 12 this going forward rather than, you know, OTC

 13 bilateral. So I would argue for a listing

 14 requirement of -- you can put an arbitrary number

 15 on it -- six months.

 16 MR. SRINIVASAN: So just to sort of

 17 follow up on your comment. So currently we have a

 18 bifurcated market structure. That's the wholesale

 19 market and the sort of the D-to-C market. And

 20 from what we understand the wholesale market is

 21 through voice. And so the electronic market, you

 22 can get this decent data which can be acquired.
 131

 1 So how do we sort of assess liquidity? So in the

 2 sense -- because in -- we can't see the depth

 3 that's there in the voice platform, so you have

 4 any thoughts on how do we assess liquidity in the

 5 market?

 6 MR. LEIZ: Well, you would have SDR

 7 data, right, whether it's traded electronically or

 8 voice. So I would think that you would want to

 9 have a threshold of when electronic reaches a

 10 certain percentage of the aggregate that it's

 11 relevant that this instrument has sufficient

 12 liquidity to trade electronically.

 13 MR. NGUYEN: I have a question that

 14 sort of touches on some of the comments that have

 15 been made so far about the technological readiness

 16 of the SEFs and the technical capabilities. And,

 17 you know, a lot of the commenters, a lot of you

 18 have said that something ought to be taken into

 19 consideration, but I guess underlying that there

 20 are I guess many different things we can look at

 21 in terms of assessing, you know, the technical

 22 capabilities. And obviously based on your
 132

 1 experience and sort of the transition and perhaps

 2 some of the difficulties that you've face so far,

 3 you know, is there a way to come up with sort of a

 4 concise list of what exactly we, you know, might

 5 look at when we're considering or, you know, a

 6 submission needs to take into consideration what

 7 at SEF is ready to do?

 8 MR. SMITH: Angela?

 9 MS. PATEL: So I don't know that it's

 10 necessarily a list of what they can do, I think

 11 it's a list of where people have to do something

 12 manually. So when the SEF sends something to the

 13 dealer how does the dealer then pull that out of

 14 their system to price it out? Do they literally

 15 have someone keying it in or copying it into Excel

 16 and then moving it back up in so we have the

 17 illusion of electronic execution? And, you know,

 18 what is happening on the buy-side and how is that

 19 getting in to the CCPs? I mean it is designed to

 20 be one big lovely circle, but there are parts in

 21 the chain I think where you need to look at where

 22 it's not flowing smoothly. So I don't know that
 133

 1 -- and maybe you can translate that into a list,

 2 but I think looking at what is being done manually

 3 or pulled out of an automated process is where

 4 you're going to find then I guess bugs or problems

 5 in the system.

 6 MR. SMITH: Thank you, Angela. Ed?

 7 MR. TSAI: And to, you know, add to that

 8 point I think the interface that these SEFs have,

 9 you know, it could be either GUI or API, and

 10 depending on the SEF they may allow access to

 11 different market participants based on GUI or API.

 12 But if it's like a GUI it's going to have that you

 13 have to pull the data manually from the GUI into

 14 whatever system. And then when you have an API

 15 you have to build that connectivity, it has to

 16 operate with your system, and that takes time. So

 17 those are all, you know, things to consider for --

 18 as I said the illusion of straight-through

 19 processing, to look past that and make sure it's

 20 real.

 21 MR. SMITH: Thank you, Ed. Lisa?

 22 MS. CAVALLARI: I agree with Arthur in
 134

 1 the point about a listing requirement in terms of

 2 potentially being associated with a number of

 3 months before it becomes MAT. I think that is

 4 important to help the runway of getting something

 5 MAT’ed and actually treated viably on SEF.

 6 I'd also like to point out that it's

 7 perhaps instructive to look to where there are

 8 examples of things that are not listed for

 9 clearing right now and are not MAT’ed, but are

 10 actually, you know are being traded on SEF -- I know I

mentioned this on

 11 the SIFMA AMG FIA asset managerpanel several months

 12 ago, but EM CDX, we at our firm choose to clear it

 13 for certain clients and it's not a mandatorily

 14 required cleared contract, it is a standardized

 15 contract and we actually do trade, depending on

 16 the size, that on SEFs. So you may be surprised

 17 where the market is gravitating towards places

 18 where I think from a policy standpoint you want it

 19 to go, but I would also highlight with that

 20 particular comment that it would be very

 21 interesting, and this really brings together the

 22 narrative that several of the panelists have made
 135

 1 that looking at the data of what's available in

 2 the OTC market and what's trading and then

 3 comparing and contrasting that with the listed

 4 information available in terms of how much

 5 electronic trading is going on in a particular

 6 product before you get to MAT, it's going to be

 7 very interesting to thread that needle and

 8 actually get closer to narrowing the subset of

 9 potential products that are MAT’ed.

 10 MR. SMITH: Doug?

 11 MR. FRIEDMAN: So I think one thing that

 12 when we talk about readiness, and we've seen this

 13 with the package relief and frankly the phasing in

 14 of the packages, one of the things that we learned

 15 in the initial MAT determination was that by

 16 designating something for MAT it did not protect

 17 it from packages not being MAT. And so it was

 18 actually up to the CFTC to take it upon themselves

 19 to phase it in that the SEFs couldn't choose to

 20 only MAT outrights and not for example MAT

 21 packages. And I think that's a big issue because

 22 one of the concerns about any additional MAT would
 136

 1 be what it means to the package world, and the

 2 SEFs don't have an ability to say we only want to

 3 MAT outrights, don't MAT the packages that are

 4 associated with those other legs. And in the

 5 absence of that -- and packages trade very

 6 differently obviously and there are a lot of other

 7 different factors how they trade and, you know,

 8 mortgages versus swaps and swapptions trade a

 9 lot differently than, you know, spread trades.

 10 And so the readiness ranges depending on the type

 11 of instrument we're talking about, and I think

 12 it's important for the CFTC to address that

 13 component for any other -- whatever consideration

 14 they make in terms of changing the MAT process.

 15 MR. SMITH: Thank you, Doug. I had a

 16 follow up to your previous statement about when

 17 you made your MAT determination you considered

 18 factors outside of the six factors we had. Of

 19 those factors you considered were there any in

 20 particular that you thought were really crucial

 21 that we should maybe consider being added to the

 22 current factors?
 137

 1 MR. FRIEDMAN: You know, it's hard for

 2 us to I guess opine that you should be including

 3 hit rate or, you know, quotation ratio, and a

 4 quote ration, and time to respond, but we viewed

 5 those all as very good barometers of how readily

 6 -- actually if you want to talk about buy-side and

 7 sell-side readiness, that was a very good indicate

 8 to us of how ready they were to trade a particular

 9 instrument. You know, again the package piece

 10 gets much more complicated, but just for pure

 11 outrights, looking at plain vanilla, you know,

 12 spot-starting stuff, it was easy to take those

 13 metrics and say people are readily trading this.

 14 Whether they wanted to do it as an RFQ-to-three,

 15 you know, is a whole other sort of series of

 16 considerations, but we knew that those were being

 17 readily priced and they were being actively traded

 18 and those were good benchmarks. If you're looking

 19 at voice, you may not be able to obviously measure

 20 that as well. And so again I think these were

 21 important factors for us to layer on in terms of

 22 what we viewed as a responsibility to MAT
 138

 1 responsibly, but I can't tell you that it

 2 definitively has to be part of an additional

 3 number of factors.

 4 MR. SMITH: Thank you, Doug. Vincent?

 5 MR. JOHNSON: I wasn't sure if it was

 6 mentioned, but I was going to throw into the pot

 7 that I think it would be helpful regarding the

 8 consistent liquidity providers and market makers

 9 into that project. I mean when you go out of the

 10 non-SEF world, I mean I know in my world sometimes

 11 you have those conversations regarding various

 12 people -- the reaching out from the exchanges to

 13 be market makers in a market just to make sure

 14 that particular commodity works. So I think there

 15 may be a way in here that could help from a

 16 liquidity perspective if you do have some

 17 confirmation that you are going to have people

 18 providing the liquidity and making the markets.

 19 MR. SMITH: Thank you, Vincent. The

 20 next question is, is should a MAT determination

 21 take into consideration how other jurisdictions

 22 are applying mandatory exchange trading
 139

 1 requirements to the swap?

 2 MR. SHIELDS: I say yes. Currently we

 3 have seen that the markets have suffered from

 4 fragmentation of the markets. And if the CFTC

 5 does not take into account how other jurisdictions

 6 are applying the exchange trading requirements,

 7 this could lead to further market fragmentations

 8 where liquidity could be driven to other exchanges

 9 and venues with less restrictive protocols.

 10 MR. SMITH: Thank you, Bill. Ed?

 11 MR. TSAI: So international

 12 harmonization of regulatory rules applying to

 13 swaps has been not something sought after by the

 14 industry. Swaps are an international market, they

 15 have been historically, and the concern now is

 16 that whether or not regulation will continue to

 17 promote global liquidity pool for swaps or break

 18 it up. Obviously the benefits of international

 19 consistency are reducing operational complexity

 20 amongst all the various market participants,

 21 reducing regulatory complexity, which leads into

 22 operational complexity, having larger liquidity
 140

 1 pools which is better for reducing systemic risk and

 2 absorbing shocks. In terms of the MAT

 3 requirements or the MAT determination, the

 4 international harmonization is probably predicated

 5 on a couple of issues that precede the MAT

 6 determination question, and one of those is the

 7 mutual recognition of the exchange platforms. For

 8 example, the mutual recognition of MTFs in Europe

 9 for example which there's a QMTF regime that the

 10 CFTC put out, the pick-up on that might have been

 11 limited. So we would encourage that the CFTC

 12 continue to work towards trying to figure out ways

 13 to encourage mutual recognition among

 14 international regulators because unless you have

 15 that mutual recognition then you won't really have

 16 the ability to trade on different platforms.

 17 In addition the form of required

 18 execution of MAT’ed swaps in the U.S., we have the

 19 RFQ-to-three and CLOB requirement for required

 20 transactions that have been MAT’ed. I understand

 21 that in Europe they may not be going in that

 22 direction. So the MAT determination itself, if it
 141

 1 occurs within the U.S., will lead to a very

 2 different type of trading and a restricted type of

 3 trading which may not necessarily apply in other

 4 jurisdictions. And so these are all the factors

 5 that need to be considered before one actually

 6 determines, you know, what are the swaps that are

 7 going to be mandatorily traded on SEF platforms

 8 and to be made consistent internationally.

 9 MR. McGONAGLE: So I have a related

 10 question. If there a determination outside of the

 11 U.S. for products that should be mandatorily

 12 traded in those other jurisdictions whether and

 13 what consideration we should give for trading in

 14 the U.S. for that same product to have that

 15 product mandatorily trade in the U.S.?

 16 MR. TSAI: Well, the requirement to

 17 actually trade on the SEF itself, the impact of it

 18 is going to be determined on what kind of trading

 19 is permitted. So if effectively the platform

 20 allows any form of execution, it probably does not

 21 alter the mode of transaction that much because

 22 here in the U.S. with the CFTC requirements it
 142

 1 limits the mode of execution. It's not exactly

 2 apples and oranges, so we would have to really look

 3 at just because someone else is doing something in

 4 another jurisdiction is it actually equivalent to

 5 a MAT determination here in the U.S.

 6 MR. McGONAGLE: So informative, but not

 7 dispositive?

 8 MR. TSAI: Right.

 9 MR. SMITH: Thank you, Ed. Stephen?

 10 MR. BERGER: Just to weigh in on this

 11 point, I think that in the long-term certainly

 12 it's important that we have a mechanism to ensure

 13 alignment of the scope of the trading obligations

 14 in different jurisdictions, and so I think maybe

 15 we'll be getting into a discussion later on about,

 16 you know, who else might be able to trigger a MAT

 17 determination or to, you know, effect that. So

 18 that I think will speak to a need for the

 19 Commission to have a role in it as well, and I

 20 think probably as we heard earlier in the day, you

 21 know, ESMA is the one that's going to be doing

 22 liquidity testing in Europe to come up with the
 143

 1 scope of products that are subject to the trading

 2 obligation. So there is value in having a

 3 mechanism to align that. I think that's a

 4 different statement than to say that we should,

 5 you know, be waiting in our jurisdiction for

 6 others. I don't think, you know MiFID II comes

 7 into effect in January 2017 and I don't think

 8 anyone is suggesting we should have been waiting

 9 that long before starting SEF trading here in the

 10 U.S.

 11 I think that just, you know, as a side

 12 comment, the narrative around liquidity

 13 fragmentation I think is quite overstated. Our

 14 funds trade with the same set of liquidity

 15 providers on-SEF today as they did off-SEF, you

 16 know, two years ago, so there hasn't been any

 17 change I think from the buy-side's perspective in

 18 terms of who you're able to trade with. Most of

 19 the commentary or analysis has been done with

 20 respect to liquidity fragmentation, has been very

 21 narrowly focused on the interdealer market and

 22 has only looked at trades being done on LCH in IRS
 144

 1 and looks at the legal entity, you know, what

 2 country the legal entity is incorporated in. So I

 3 think that yields kind of a perverse outcome when

 4 you're looking at whether liquidity has fragmented

 5 or not. It used to be when, you know, if our fund

 6 was trading with a given counterparty in the

 7 sterling or euro market we were interacting with

 8 -- you know, and that trade was being booked to a

 9 counterparty entity in the U.S., some

 10 organizations are now booking those trades in a

 11 London entity. And so what happens is there is

 12 now a cross-border trade that's occurring between

 13 our funds that are U.S. persons and an entity in

 14 London. So there is a cross-border trade

 15 happening, but that's not showing up in the data

 16 set that's being used to claim there is liquidity

 17 fragmentation, because now the interdealer side of

 18 that trade is between two entities based in

 19 London.

 20 So I do think we have to take a closer

 21 look at this liquidity fragmentation narrative and

 22 not let it cloud the policies we are pursuing.
 145

 1 And I think there have been constructive solutions

 2 in the marketplace that have emerged. I know ICAP,

 3 for example, has a duly-registered SEF MTF and it

 4 moved all their dollar swap liquidity into that

 5 entity which provides a single trading platform

 6 for U.S. persons and non-U.S. persons to interact

 7 in that marketplace. That's potentially a path

 8 forward. I know that's more the dual registration

 9 route than the substituted compliance route, but I

 10 think there are ways forward that the market is

 11 going to gravitate to over the next few years to

 12 solve these types of challenges.

 13 MR. SMITH: Thank you, Stephen. Dexter,

 14 and then I will go to Ed.

 15 MR. SENFT: I just wanted to be

 16 responsive to Director McGonagle's last question.

 17 When we compare ourselves to the rest of the world

 18 -- let's just assume that's one thing, the rest of

 19 the world -- there are two cases where we're not

 20 concerned at all. Either neither of us makes it

 21 mandatory or both of us do, so we don't care about

 22 those cases. That leaves the two others. If we
 146

 1 mandate and they don't, but we're doing it based on

 2 a good rule set that the market has weighed in on

 3 and in some cases even put quantitative factors

 4 on, I think we stand by it. I don't think there's

 5 any remorse if we've had a good process and the

 6 rest of the world doesn't have that process. So

 7 the only case that really is cause for potential

 8 concern in the one that you mentioned, which is

 9 well what if they're mandating and we're not.

 10 It's definitely cause for investigation. Is it

 11 because they're market is different and they've

 12 got different kinds of participants that we don't

 13 have, is it really that illiquid in our market that

 14 it doesn't rise to the level. So it's definitely

 15 cause for further investigation, but not in and of

 16 itself something that I would say is

 17 determinative.

 18 MR. SMITH: Thank you, Dexter. Ed?

 19 MR. TSAI: I'd like to just address some

 20 of the comments that Stephen made. Completely

 21 agree that further investigation of the impact on

 22 global liquidity for these -- and cross-border
 147

 1 liquidity in terms of these MAT determinations is

 2 warranted. We welcome further investigation of

 3 it. I do wonder though that if the observation

 4 that there is no liquidity impacts or cross border

 5 liquidity impacts maybe from the perspective of

 6 end users because dealers and liquidity providers

 7 tend to bring their international operations into the

 8 U.S. and make themselves available in the U.S.,

 9 whereas the liquidity providers who are looking to

 10 access liquidity on a cross border basis in order

 11 to make markets, they may be the ones that are

 12 seeing challenges on the liquidity area cross-

 13 border wise.

 14 MR. SMITH: Thank you, Ed. Stephen?

 15 (Laughter) The next question is should MAT factors

 16 be quantitative in nature? If so, then what are

 17 some examples of appropriate thresholds? And I

 18 will start with you, Dexter.

 19 MR. SENFT: Okay. So you could probably

 20 tell by my last response that we think there can

 21 be some thresholds. We wouldn't get carried away.

 22 A lot of the factors aren't necessarily
 148

 1 subjective, but there are a few where we think you

 2 can put some numbers on it and I've already

 3 mentioned two. We think it's really important to

 4 have multiple SEFs trading a product. The right

 5 threshold there is two. It's really important to

 6 have multiple liquidity providers; the right

 7 threshold there is two. The only other things

 8 we've put numbers on are something -- I'm not sure

 9 it's come up yet, but we think that there should

 10 be outstanding cleared amounts of the product at

 11 the CCPs. This provides a set of natural buyers

 12 and sellers. These are people who already have a

 13 position one way or the other. They would be

 14 looking to increase or decrease that position and

 15 equity markets have shown us that the existence of

 16 naturals in a marketplace is a good thing. What's

 17 the right amount of natural interest? We would

 18 say ten times the average daily trading volume.

 19 Count one side when you're doing that calculation.

 20 And we would also put a threshold on average daily

 21 trading volume. We would say at least 100 million

 22 notional average per day, look back 30 days for
 149

 1 that determination. Now I would apply that only

 2 in the rates market. The credit market the rules

 3 basically put new series on as soon as they come

 4 out. We think that's perfectly appropriate. So

 5 that 100 million notional average per day is rates

 6 only.

 7 MR. SMITH: Thank you, Dexter. I'm

 8 going to go to Tom and then I'll come back to you, Ed.

 9 MR. BENISON: Thank you. So I would

 10 agree with Dexter that quantitative analysis is

 11 important. We think with quantitative analysis

 12 across the factors, you know, you really get a

 13 grip on an objective way of looking at the

 14 criteria. We hadn't put together the numbers that

 15 Dexter has, but I do think it's important that

 16 when you're coming up with a quantitative analysis

 17 you have a clean set of data that people agree on,

 18 whether that's SDR data or CCP data. I think what

 19 you want to make sure is that the people putting

 20 forth the application, the people analyzing the

 21 application, the people maybe putting in public

 22 comments, if we have that, are looking at the same
 150

 1 set of data to do the analysis so they're not all

 2 talking about sort of a discreet population that

 3 they have somehow -- think is the important piece

 4 of it.

 5 And so the only other point I would make

 6 is that with the credit index, Dexter, I think you

 7 said the rules haven't come on. I don't think

 8 it's the rule that haven't come on, I think it's

 9 the way the MAT determination was made is actually

 10 how it rolls on. But I would agree with you that

 11 that mechanism works.

 12 MR. SMITH: Thank you, Tom. Ed?

 13 MR. TSAI: I'll just add that a common

 14 set of objective data that represents the whole

 15 market, I think that some of the MAT

 16 determinations or MAT requests did in some

 17 instances use data for the particular exchange,

 18 which they acknowledge was a limited subset, but

 19 in order for -- especially if we're going to have

 20 a public comment process, so that the data can be

 21 analyzed by market participants and the public at

 22 large on their own, a common data set I think
 151

 1 would be useful.

 2 MR. SMITH: Thank you, Ed. Arthur?

 3 MR. LEIZ: So I think that you should

 4 use some objective criteria for analyzing at least

 5 the six criteria that are already in place. I

 6 think it should be an “and” rather than an “or,” but

 7 the criteria should be somewhat loose so that, you

 8 know, to not be overly prescriptive. I also would

 9 agree with Dexter that you should have a minimum

 10 of two SEFs that are offering a specific product.

 11 Where I differ slightly is I think you should have

 12 a minimum of five dealers who are market making

 13 the product, especially given that you are

 14 required to go to three and it gives you

 15 sufficient flexibility to choose additional

 16 dealers.

 17 MR. McGONAGLE: On the particular SEF that's

 18 making the determination, the five -- it should be

 19 five dealers?

 20 MR. LEIZ: Five, yes. And just a

 21 general comment. You know, I'm not sure we'd be

 22 sitting here talking so seriously about MAT if it
 152

 1 wasn't for the prescriptiveness of the trade

 2 protocols. I don't mean to digress, but I've been

 3 trading OTC fixed income derivatives for my entire

 4 career and I've seen a tremendous amount of

 5 innovation, both on the product side and the

 6 market structure side, and it's discouraging to

 7 see that we're going to see no further innovation

 8 on the trade protocol side because of the

 9 prescriptiveness.

 10 MR. NGUYEN: In terms of looking at

 11 quantitative data, is there sort of an ideal

 12 period or window, you know, in terms of like what

 13 we should be evaluating? It would be three months

 14 of SDR data, would it be six months? If anyone

 15 could provide some comment on that.

 16 MR. SMITH: Lisa?

 17 MS. CAVALLARI: You potentially might

 18 want to think about looking -- maybe it's by

 19 product. I'm just thinking contemporaneously here

 20 because of seasonality surrounding certain

 21 contracts and roll periods. It may be more

 22 appropriate for some -- I'm just thinking
 153

 1 commodity -- to look at more than six months of

 2 data. But even looking at whether it's a year or

 3 two or since data was required to be reported, I

 4 think all of that helps to provide information and

 5 clues in terms of what's happening in the

 6 marketplace.

 7 MR. SMITH: Thank you, Lisa. I will go

 8 to Tom, Dexter, and then back to you, Stephen.

 9 MR. BENISON: Yes, I think you want to

 10 look at as much data as you have available. And

 11 again this kind of get to the issue of looking at

 12 the cyclicality of the liquidity in that product,

 13 but look at as much data as you have available.

 14 You may end up saying well at the beginning of

 15 this set of data the liquidity was very low, but

 16 we've seen it be consistent for the past, you

 17 know, year or 18 months, and so we think it makes

 18 sense to have this product MAT, or you may make a

 19 different analysis. But I would say to look at

 20 all the data you have available and use that in

 21 your analysis.

 22 MR. SMITH: Thank you, Tom. Dexter?
 154

 1 MR. SENFT: There's an elephant that

 2 walked into the room and I want to make sure that

 3 it's recognized. Whatever data set we use,

 4 however far back we look at the data, if we have a

 5 process for MAT which has taken on objective

 6 criteria with actual numerical thresholds, then we

 7 have to recognize that in addition to have a MAT

 8 process we have to have a de-MAT process for those

 9 products that no longer meet those thresholds. So

 10 we would propose calling it MUT, made unavailable

 11 to trade. (Laughter) And it has a nice ring to

 12 it, but it's important that if we go down that

 13 path then there has to be MUT'ing, not just

 14 MAT'ing.

 15 MR. SMITH: But to follow up on your

 16 suggestion, do you have any criteria in mind as to

 17 what would make a swap so to speak MUT?

 18 MR. SENFT: Well, I led off saying that

 19 I put numbers on four things, so two SEFs, two

 20 liquidity providers, ten times average daily

 21 volume cleared outstanding, and ten times average

 22 daily trading volume, and 100 million notional
 155

 1 average per day. We would look back 30 days or

 2 something simple. Again that's just for rates.

 3 So those are it. If they go above that line let's

 4 MAT them, if they go below that line, let's de-MAT

 5 then.

 6 MR. SMITH: It would be any one of those

 7 factors?

 8 MR. SENFT: Well, that's obviously for

 9 the Commission to ultimately determine, but that

 10 was our opinion.

 11 MR. SMITH: Okay. Thank you. Stephen?

 12 MR. MCGONAGLE: Well, can I just follow

 13 up? I'm interested in the -- is there a concept

 14 of the ability to take a product off of the MAT

 15 listing, does that encourage people to consider

 16 MAT filings if they know that if there is going to

 17 be some threshold analysis, that if it falls below

 18 then it will no longer be required to be on

 19 facility?

 20 MR. SENFT: You were looking straight at

 21 me so I'll assume that was directed at me. I

 22 think that's for the -- I think there are two
 156

 1 subparts to that question. As the process exists

 2 today it would be the SEFs would have to answer

 3 that question. Would that help break the barrier

 4 that seems to exist in making further MAT

 5 determinations? We have some SEFs here, let them

 6 speak. But I also know that one of the questions

 7 you haven't asked yet is who should make MAT

 8 determinations or MUT determinations. So I'll

 9 just wait until you get to that point.

 10 MR. MCGONAGLE: Perfect punt. Thanks.

 11 MR. SMITH: Stephen?

 12 MR. BERGER: On the data front I thing

 13 that this points out is some of the limitations of

 14 the SDR data for what we're trying to do in this

 15 exercise. So if I just look at the six factors

 16 that are currently, you know, on the books,

 17 clearly based on the SDR data we can look at the

 18 frequency and size of transactions and we can look

 19 at the trading volume, which are the second and

 20 third factors. You can get some indication of the

 21 number and types of market participants, but not

 22 with any level of specificity that I think would
 157

 1 be informative there. And then you would get

 2 nothing on whether there are ready and willing

 3 buyers or sellers, you would get nothing from the

 4 SDR data on the bid-ask spread, and nothing on the

 5 usual number of resting or firm indicative bids

 6 and offers. So we need a data driven approach. I

 7 think a lot of these additional pieces of data are

 8 available from the venues and could be collected.

 9 And I actually don't know to what extent they are

 10 and/or if they are, are made public, but there's

 11 certainly a lot more transparency that we could

 12 get into what's happening in this market and that

 13 we could make available and that I think would

 14 inform our policymaking decisions. And starting

 15 with figuring out what data we can collect from BM

 16 market participants, the trading venue, or others

 17 to have a good view of each of those six factors I

 18 think is an excellent start.

 19 MR. SRINIVASAN: So I had a question on

 20 this solution that there should be at least five

 21 market makers on the SEF that is making the

 22 submission. I'm concerned about whether there
 158

 1 will be sort of an entry barrier for a new SEF,

 2 right. So the sense that if I'm looking at Sunil

 3 here, he's new to the business, he doesn't have an

 4 existing order flow, and how do you go about --

 5 I've been in the business of developing new

 6 markets in that trade space and there's a chicken

 7 and egg thing, right. So firms will say, you

 8 know, call me when the future space open interest 

 9 hits 5000 contracts, okay. So there is an

 10 issue of, you know, on one hand I won't get firms

 11 signing on as even buy-side connectivity platform

 12 and sell-side also saying as the market maker,

 13 where the does the customer flow that's coming in,

 14 so I don't have an existing business, I don't have

 15 order flow, so how do we sort of -- I'm concerned

 16 about this five market maker rules as preventing

 17 -- sort of basically setting up an entry barrier

 18 to the execution business? If you could talk

 19 about that.

 20 MR. LEIZ: So the SEF landscape is

 21 competitive obviously and there is some innovation

 22 in terms of their platform, the way they're
 159

 1 connecting, so I would say that if a platform is

 2 decent and attracts the interest of the buy-side

 3 and we want to trade on it, I'm going to be vocal

 4 about that and I'm going to let my dealers know

 5 that this is a platform that I want to start

 6 trading on. You know, it's just a natural

 7 evolution of how things work in our marketplaces

 8 that, you know, there is buy-side and sell-side

 9 interests and, you know, at times the sell-side

 10 drives the interest and at times, you know, the

 11 buy-side drives the interest. I would say though

 12 that if you have too few dealers on there you're

 13 handing them a virtual monopoly potentially on a

 14 MAT’ed product, and their ability to market make.

 15 So I personally would rather have more choices

 16 than less when dealing with a specific instrument

 17 on a SEF.

 18 MR. SRINIVASAN: Sunil, do you care to

 19 comment?

 20 MR. HIRANI: So, you know, we had the

 21 luxury of starting with zero. So that was a nice

 22 round number. And so if there was a threshold of
 160

 1 five, you know, we would have never been able to

 2 convince our first one or the second one or the

 3 third one to ever do a transaction. So now we're

 4 up to 17 dealers. As I said before we're still

 5 missing two out of the top five dealers, and

 6 that's actually okay because we've been able to

 7 originate inquiry and to have just one dealer

 8 respond when it was, you know, not a MAT

 9 instrument. So I think, you know, as I think I've

 10 already alluded to, there are significant

 11 insurmountable barriers to these markets, and

 12 there are only two legacy providers. And in 25

 13 years, no new entrant has been able to make it into

 14 the swaps market, obviously. So I think raising

 15 the barrier, so that's really part of the reason

 16 we don't want to file an additional MAT

 17 application, because it will require the buy-side,

 18 the dealers, everybody else to make further

 19 investments in technology which will further delay

 20 the onboarding process, right.

 21 The other comment I was going to make, I

 22 believe it was Dexter's comment, looking at data
 161

 1 which will mean that knowing your products, you

 2 know, can be launched right away on technology.

 3 So I think that's a bit of a design flaw. So

 4 we've been able to convince people one by one.

 5 And there was a time when were we able to do a

 6 transaction with less than five dealers on our

 7 platform, and that was actually okay.

 8 MR. SMITH: Thank you, Sunil. Wally, I

 9 saw you had your placard up. Then I'll come back

 10 to you Dexter, and then I'll circle back to you,

 11 Vincent, for the original question.

 12 MR. SULLIVAN: Thank you. Kind of,

 13 Sunil, you know, our system sort of the newcomers,

 14 our real opportunity would be if and when, you

 15 know, CLOBs take off. And again for us we look at

 16 it as, you know, we would be willing to do further

 17 MAT filings if we had the support, but we actually

 18 see it as it's directly linked to this post-trade

 19 name give-up legacy as it applies into CLOBs

 20 because it's very difficult to gain any critical

 21 mass in interest from the buy-side because, you

 22 know, what it does is it undermines the interest
 162

 1 in anonymity. And so because of that it's been

 2 very difficult to kind of get a foothold.

 3 MR. SMITH: Thank you, Wally. Dexter?

 4 MR. SENFT: Yes, just I think there is

 5 some clarification that needs to be made. One to

 6 the point raised by Sayee and one by Sunil. It's

 7 very, very important that the market encourage

 8 innovation and competition. So whether the right

 9 number for the number of liquidity providers is

 10 two or five, there is probably some number that's

 11 right, and what I'm saying is that that's the

 12 number that somebody needs to have to file a MAT

 13 determination. Now if trueEX only has one

 14 liquidity provider, that's okay. Once it's MAT, it

 15 doesn't mean every SEF has to have two liquidity

 16 providers, it means that somebody did at least --

 17 well, again in the interest of market resiliency

 18 there ought to be two that have two, or there

 19 ought to be two that have five, whichever number

 20 the Commission thinks is right, but that doesn't

 21 mean everybody has to have two or five. So we

 22 don't want to discourage the new guys, the
 163

 1 trueEXes from coming in. Parenthetical comment,

 2 trueEX is new to the market, Sunil is not.

 3 (Laughter) The other thing is that we don't want

 4 to stifle new product innovation so yes, I would

 5 say we need some historical data to make a MAT

 6 determination, but not to innovate with a new

 7 product or to list it on a SEF.

 8 MR. SMITH: Thank you, Dexter. Vincent?

 9 MR. JOHNSON: I just wanted to go back

 10 to Director McGonagle's point about the --

 11 MR. MCGONAGLE: Let's just go with

 12 Vince. Sorry, Vince. (Laughter)

 13 MR. JOHNSON: Okay. About the removal

 14 of the MAT determination. A little different from

 15 Dexter and I'm just going to say -- and again this

 16 has been addressed in the ISDA petition -- but the

 17 thought about the process was that not only can a

 18 SEF, but also SEF users could actually make a

 19 request that a MAT determination be removed. And

 20 then, rather than some threshold amount, our thought

 21 was that it should be based on the initial

 22 criteria. So whoever makes that request would
 164

 1 have to provide detailed explanation based on the

 2 original criteria for that removal process. And

 3 from the theme that we have again thought that

 4 should be subject to public comment also.

 5 MR. SMITH: Thank you, Vincent. We'll

 6 now move onto I think the topic that will be hotly

 7 debated as to who should make the MAT

 8 determination.

 9 The first question, and I'll come to you

 10 first, Bill, is who should initiate a MAT

 11 determination.

 12 MR. SHIELDS: Well, certainly we think

 13 that the execution venues have the most experience

 14 in that area seeing what goes through them and how

 15 they've been providing execution, so we think that

 16 it's probably best left with the execution venues

 17 to make the initial MAT determination, which would

 18 then lead to the public comment period and

 19 ultimate determination by the CFTC.

 20 Just one thing I'd like to comment on

 21 which has kind of been touched on by a number of

 22 the other panelists is, you know, the WMBA firms
 165

 1 have generally been successful based on the

 2 technological innovations it's brought to the

 3 market in helping provide liquidity. One of the

 4 concerns we have is that once a product is

 5 determined to be MAT that we're actually cutting

 6 off potential modes of execution. But we really

 7 think we should be actually promoting the

 8 technological innovations and bringing that to the

 9 market. So that's one concern we had when

 10 something is actually determined to be MAT.

 11 MR. SMITH: Thank you, Bill. Lisa?

 12 MS. CAVALLARI: So at the risk of saying

 13 something potentially unpopular here (laughter), I

 14 do think the CFTC has a role in this. If you have

 15 a role in clearing, then certainly a role in the

 16 MAT determination. And I know that suggestion was

 17 made, you know, in a number of comment letters

 18 obviously before the actual final rules were

 19 published -- by ICI and SIFMA AMG, just two

 20 particular examples. But I sort of -- and at the

 21 risk of creating more bureaucracy or more work

 22 than potentially anyone thinks it's worth -- to
 166

 1 acknowledge what other panelists have said, it's

 2 really I think a collaborative process perhaps

 3 with something like a CFTC -- each have power. I

 4 mean I think the exchanges, the DCOs, the DCMs,

 5 the buy-side, the sell-side, and the SEFs

 6 themselves can probably together make an

 7 informative decision on that.

 8 But I would also have to remark that

 9 perhaps examining how we got here in a tip to

 10 Commissioner Giancarlo's White Paper on SEFs, you

 11 know, I'm working under the operating constructs

 12 that we have in place now, like how can we make

 13 what is in front of us better. That's not to

 14 discount other people's innovations for how to

 15 sort of rethink what a better way to do this

 16 process could be, but based on what we have now, I

 17 do think the CFTC has a role as well as other

 18 industry participants in helping to make that

 19 determination. And I wouldn't necessarily be --

 20 again 17 months in I'm not necessarily convinced

 21 that we aren’t where we're supposed to be right now.

 22 And perhaps it's too early to come to a definitive
 167

 1 conclusion on that topic.

 2 MR. SMITH: Thank you, Lisa. I will go

 3 to Arthur, Dexter, Wally.

 4 MR. LEIZ: So there are two routes that

 5 a SEF can attempt to MAT something, it's 40.5 and

 6 40.6. Under 40.6 I would remove the self-

 7 certification process, and in doing so, then you

 8 might as well just remove 40.5 since they become

 9 very similar. 40.6 allows for the public comment

 10 which I think is crucial, but, you know, to Lisa's

 11 point, I do believe it's a collaborative effort.

 12 I think that potentially, and I don't want create

 13 more bureaucracy, but a MAT determination advisory

 14 committee made up of market professionals to help

 15 you evaluate the merits of the application in

 16 terms of the criteria, technological readiness,

 17 connectivity, et cetera.

 18 MR. SMITH: Thank you, Arthur. Dexter?

 19 MR. SENFT: My answer is contingent upon

 20 the existence of the MUT process, so just put it

 21 in that context. But if we have the ability to go

 22 both ways then I think it's appropriate to open
 168

 1 the MAT'ing process and the MUT'ing process along

 2 with it. We would say -- well, look, the spirit

 3 is you want somebody who understands the market,

 4 has access to the right kind of information, to

 5 make the determinations or at least to propose

 6 MAT'ing. We think there are three of those.

 7 There is the SEFs themselves, which we already

 8 have, there is the Commission itself, and there is

 9 a -- let's call it the trade associations

 10 recognized by the Commission. So, you know, the

 11 obvious candidate there would be ISDA, there are

 12 perhaps some others, but we think that any of

 13 those have the capability to do, you know,

 14 rational proposals.

 15 MR. SMITH: Thank you, Dexter. Wally?

 16 MR. SULLIVAN: Well, I just don't -- I

 17 think that it's not necessarily an either/or,

 18 whether the CFTC or the SEFs, I think it should be

 19 both. You know, I'm kind of looking forward and

 20 if competition is released along with anonymity in

 21 CLOBs, you know, my suspicion is that firms like a

 22 Javelin may be prompted to MAT at a faster pace
 169

 1 than the CFTC potentially would. And so I would

 2 not want to give up that ability.

 3 MR. SMITH: Thank you, Wally. Ron?

 4 MR. STEINFELD: Great, thank you, Roger.

 5 Given the discussion we've had so far regarding

 6 potentially moving to a harder quantitative

 7 analysis when it comes to determining whether a

 8 swap should be MAT’ed or not, the discussion kind

 9 of falls away. It really doesn't matter as much

 10 who is making the application if we're going to

 11 look at a harder set of criteria in determining

 12 whether the swap should be MAT’ed or not. Given

 13 that it would seem to me to be more appropriate

 14 that the CFTC could the arbiter of what swaps

 15 should be potentially MAT’ed or not given that if

 16 we're just comparing the trading activity, the

 17 liquidity profile of the swap to a certain preset

 18 list of criteria, whether the SEF is responsible,

 19 the CFTC is responsible, the swap MATs itself.

 20 MR. SMITH: Thank you, Ron. I'll come

 21 to Angela, Sunil, and then Stephen, and then Tom.

 22 MS. PATEL: So I agree that a swap can
 170

 1 MAT itself, but all of the infrastructure needed

 2 to support the swap and implement it in our

 3 portfolios does not happen on its own. I am a big

 4 fan of removing the self-certification process and

 5 I'm a big fan of being able to control the

 6 portfolios and the funds that are entrusted to us.

 7 So having a SEF able to move things along quicker

 8 than perhaps the Commission would like to actually

 9 makes me very uncomfortable because there are so

 10 many other people involved and so many other

 11 parties involved. And at the end of the chain,

 12 you've got the asset managers who are simply

 13 trying to act as fiduciaries for the people who

 14 have entrusted their monies with us, and are

 15 hoping that we can make the right decisions on

 16 their behalf. And having our tool box adjusted or

 17 having our opportunities set removed or impaired

 18 or crippled because of the actions of a SEF are

 19 very troubling to me.

 20 MR. HIRANI: So, you know, I mean if you

 21 think about what happened the last time we had the

 22 flurry of MAT applications, I think looking at
 171

 1 that and seeing what resulted, which I think a lot

 2 of us on this panel would agree was the right

 3 outcome, trying to formalize that in essence which

 4 was the buy-side, the trade associations, the

 5 dealers, and the venues had an opportunity to

 6 interact with each other, had an opportunity to

 7 give feedback to the Commission. And one possible

 8 suggestion would be one -- you know, I'm going to

 9 leave aside who can MAT -- but whoever those group

 10 or groups can MAT, you know, there should be an

 11 open public process that -- you know, put on a

 12 board what are the criteria that should be

 13 considered and let there be an open public debate

 14 about the merits of the application. So everyone

 15 who has a vested interest, not just the venues,

 16 but the people who are the managers and the market

 17 makers also have an opportunity in a public forum

 18 to debate it. And like a lot of things it will

 19 become pretty obvious if something should be MAT

 20 or not. And in essence that's what happened in a

 21 variety of serial meetings the last time.

 22 Thank you.
 172

 1 MR. SMITH: Thank you, Sunil. Stephen?

 2 MR. BERGER: So I think going forward it

 3 would be advisable to have both a top-down and

 4 bottom-up approach to the MAT determination

 5 process. I think that's going to be the most

 6 sustainable mechanism for the long-term. We have

 7 that process in place with respect to the clearing

 8 mandate today and I think it would make sense to

 9 have some parallel process in place. I think that

 10 still allows the SEFs to play the role of being,

 11 you know, the ones closest to the trading, also

 12 involved in trying to innovate, you know, list new

 13 products for trading and bring volume onto their

 14 volumes. So it would allow that to still occur,

 15 but I think it provides, you know, the Commission

 16 the ability to weigh in appropriately as well. I

 17 think in both cases I agree there should be a

 18 public comment period, an appropriate checks and

 19 balances. I think the Commission having the

 20 ability to initiate a top-down MAT determination,

 21 where appropriate, is going to be important for

 22 international harmonization, which I alluded to
 173

 1 earlier in terms of ensuring we have a consistent

 2 scope globally of what products are in scope for a

 3 trading obligation.

 4 I also think that an adverse consequence

 5 of the current process is that the inability to

 6 control the MAT process creates this link between

 7 the clearing obligation, the trading obligation

 8 that some people are quite frightened of. And so

 9 that creates I think a negative force on the

 10 further expansion of central clearing which I

 11 think is something everyone around this table

 12 agrees has gone well and may even warrant further

 13 expansion. We saw it manifest itself in the

 14 discussion last fall around FX NDF clearing and

 15 whether or not FX NDFs are appropriate for

 16 clearing or not aside, I think there's a number of

 17 additional currencies and interest rate swap

 18 complex that we clear today and are, you know,

 19 completely appropriate for the clearing obligation

 20 to expand, you know, to cover, but I don't think

 21 people are necessarily are ready to trade those on

 22 SEFs, and so I think there's a reluctance to
 174

 1 further expand the clearing mandate because there

 2 is no way to ensure that a SEF mandate couldn't

 3 get triggered 30 days later because of, you know,

 4 some of the factors I alluded to already. So I

 5 think sustainably for the long-term, the top-up,

 6 bottom-down approach to clearing mandate could

 7 have value for the MAT process as well.

 8 MR. SMITH: Thank you, Stephen. Tom,

 9 and then I'll come to you, Doug.

 10 MR. BENISON: So I think as long as we

 11 have a MAT process, someone is going to have to

 12 make the determination and I think -- someone is

 13 going to have to initiate it and then someone is

 14 going to make the determination. I think in terms

 15 of initiating it, you know, I don't feel very

 16 strongly that you have to limit it to SEFs being

 17 able to initiate it, you could have, you know,

 18 bottom-up or top-down, you could open the process

 19 to industry organizations. I think though

 20 fundamentally you're going to need to have a SEF

 21 there to support it. So that's why I think it

 22 really is going to start with SEFs no matter what
 175

 1 you sort of have as the entire set of entities

 2 that could make a proposal. I do think it's

 3 important that whatever proposal is made the CFTC,

 4 you know, makes the final determination, it

 5 doesn't just rely on self-certification.

 6 MR. SMITH: Thank you, Tom. Doug?

 7 MR. FRIEDMAN: I may be jumping ahead

 8 because of where the questions go, but this is the

 9 second MAT Roundtable we've had and it's

 10 obviously been a very controversial topic really

 11 from the beginning. But I think it's also

 12 important to recognize where we are in the

 13 process. I mean I think at the time that MAT

 14 determinations were made initially the CFTC may

 15 not have been in a position to have the data or

 16 the information to have done if you will the top-

 17 down type of analysis. And while there have

 18 obviously been a few bumps in the road, but the

 19 process has been reasonably successful, there is a

 20 reason why we're here today, because questions

 21 still persist. And I think with that in mind, you

 22 know, we are supportive of the idea that there is
 176

 1 -- it's parallel to the clearing process we think.

 2 While it worked with -- you know, reasonably for

 3 the SEFs to do it, all the concerns about either

 4 misaligned incentives or conflicts of interest, or

 5 just potential opportunities for a race to the

 6 bottom if there's commercial influence here, we

 7 think that at this point in the process it's more

 8 appropriate for the CFTC to follow the clearing

 9 process for MAT, which is take what the SEFs are

 10 listing on their platforms, that's essentially the

 11 pool from which the CFTC can choose, then they can

 12 put out for comment and they can get, you know,

 13 very -- I 'm sure they will get very ample comment

 14 back in terms of both the objective criteria, what

 15 the market is ready for and what they're not, and

 16 they go from there. And so I think we are at a

 17 different point in the lifecycle and I think the

 18 CFTC has the ability to step in. And I think from

 19 a resource perspective -- because I know there are

 20 concerns from the CFTC's perspective about, you

 21 know, further resource issues -- but it's not as

 22 if this is going to be happening all the time. I
 177

 1 mean think about it, you did a clearing

 2 determination, it's not as if, you know, this is

 3 something that you're going to have to do all the

 4 time. And we think that it's not going to be

 5 perhaps the strain on resources that has been

 6 articulated. And so we're supportive at this

 7 point of moving it on to the CFTC making that

 8 determination with the appropriate public comment.

 9 MR. SMITH: Thank you, Doug. Because of

 10 time constraints I'm going to skip a little bit

 11 further ahead. And one of the topics that has

 12 come up a fair amount is the topic of the timing

 13 between when a clearing determination happens and

 14 when a MAT determination can be made. And I just

 15 wanted to -- I'll kick it to you first, Angela,

 16 and then we'll go to Vincent.

 17 MS. PATEL: The process for a clearing

 18 determination and the execution determination are

 19 separate and they need to be separate. There are

 20 a number of things that have to happen. To clear

 21 a trade is in hindsight a relatively light lift.

 22 Just submit a trade that you've executed for
 178

 1 clearing. But to get the pipes and infrastructure

 2 built for the actual execution is significant and

 3 it requires a number of parties and it requires,

 4 from the beginning of the chain all the way back,

 5 code being released down so that everyone can test

 6 it and make sure that we've got straight through

 7 processing or the illusion thereof. Just because

 8 a swap can be cleared does not mean that it can be

 9 electronically executed under the mandate. You

 10 know, certainly the idea of sufficient liquidity

 11 for the swap is an important one and I think

 12 particularly as we look at the assets that have

 13 been impaired due to the package linking, that's

 14 something that has to be considered in looking at

 15 the liquidity of the actual packages before they

 16 are forced into that environment. And again I

 17 think that, you know, we've seen the packages

 18 impacting or being impacted by the execution

 19 determination. The first series of packages that

 20 went were very clean. They were spot swap versus

 21 spot swap, it was pretty slick. We started to see

 22 it fall apart a little bit with the MBS agency
 179

 1 swap. I do believe very strongly that in November

 2 we are going to see a massive impairment of a risk

 3 tool happening. And I think that as we look into

 4 next year, as we look at swap versus swaption,

 5 that is another very important tool that we use

 6 that should not be automatically included in the

 7 execution determination simply because the

 8 associated swap is made available to trade.

 9 And that wasn't exactly responsive, but

 10 I think I made my point.

 11 MR. SMITH: Thank you, Angela. You did.

 12 Vincent, and then I'll come to you, Ed.

 13 MR. JOHNSON: We feel in agreeing with

 14 some of what Angela said, with the separation, but

 15 we feel that most importantly is to give the

 16 market participants their time to adjust their

 17 business processes, so you have to look on for

 18 that. But our view is that once the clearing

 19 mandate is made the swap should be subject to the

 20 trade execution requirement based on the

 21 compliance rate, the clearing requirement

 22 compliance schedule. So 60 days after the
 180

 1 applicable deadline -- there's also pushing for

 2 the fact that once the Commission -- pushing for

 3 the Commission to make an order on these

 4 determinations, and then 30 days after the

 5 Commission makes an order on that determination.

 6 MR. SMITH: So you would tie it to the

 7 implementation schedule of the mandatory clearing

 8 requirements. So for different participants you

 9 would have different times under which the trade

 10 execution requirement could be implemented or

 11 would you say go to the outer bounds of the

 12 clearing requirement and then apply -- allow for a

 13 trade execution requirement to be applied?

 14 MR. JOHNSON: I wasn't clear on your

 15 question, so.

 16 MR. SMITH: So, under the clearing rules

 17 there are different times for implementation

 18 depending on what type of market participant you

 19 are. So my question is, is do you tie the

 20 implementation of the trade execution requirement

 21 to the type of participant you are, or do we just

 22 have a blanket and go to the last possible date
 181

 1 for the smallest participants?

 2 MR. JOHNSON: I guess we look at it from

 3 the latter part of the compliance schedule. So

 4 following the compliance schedule or within the 30

 5 days of Commission issues an order on that part.

 6 MR. SMITH: Thank you, Vincent. Ed?

 7 MR. TSAI: So to just address the last

 8 question, I think that it would make sense to wait

 9 until the Category Three goes effective for

 10 mandatory clearing before you start the clock on

 11 the grace period for allowing a MAT submission to

 12 be permitted simply because ultimately you're

 13 looking to bring all the trading into one like

 14 forum of the various exchanges that are going to

 15 offer the MAT swaps. And so it would make sense

 16 to have all of the market on that forum together

 17 simultaneously rather than to split it up, because

 18 that would obviously have an impact on liquidity.

 19 In terms of the package point that was

 20 raised, we completely agree. I think that many of

 21 the MAT submission back when rates and credit

 22 indices were made MAT they had requested packages
 182

 1 to go through a separate MAT determination and we

 2 would wholeheartedly support that the packages

 3 just trade on completely different criteria,

 4 different dynamics, and they should be assessed on

 5 their own rather than just looking at an element

 6 within the package.

 7 Then lastly, in terms of timing, we

 8 support the ISDA petition, although we would say

 9 that perhaps even a longer grace period would be

 10 useful for the industry in terms of the time

 11 period from the mandatory clearing determination

 12 to the MAT effective date, say 180 days might

 13 actually give enough time for the industry to

 14 really work through all the kinks. And then also

 15 from the period between the MAT determination and

 16 the effectiveness of MAT we would say 90 days

 17 would be ideal.

 18 MR. SMITH: Thank you, Ed. Arthur and

 19 Tom, I know you have your placards up, but due to

 20 time considerations, we're going to move ahead

 21 because we want to give each of you an opportunity

 22 to respond to I think the last topic that we're
 183

 1 going to cover, which is if hypothetically the

 2 Commission were to make changes to the MAT

 3 process, what is the most essential change the

 4 Commission should make and why. And I'm just

 5 going to start with Tom and circle around. We do

 6 have about 15 minutes, so if you could keep your

 7 responses fairly brief it would be appreciate.

 8 MR. McGONAGLE: So that's like a minute a

 9 person Roger. (Laughter)

 10 MR. BENISON: Simply to say I don't know

 11 that there's one change you can make. I think you

 12 have to sort of -- you know, you want to move the

 13 construct more to a construct similar to what's

 14 used for mandatory clearing.

 15 MR. BERGER: I think we have to take a

 16 hard look at where we are now right now and why.

 17 And I think right now we're at a point where

 18 market discipline has resulted in there not being

 19 any further MAT submissions since the initial

 20 round of 18 months ago or something like that.

 21 And I think you should look to the reasons of why

 22 that has happened. I think part of it is there is
 184

 1 continuing unease about how any expansion of the

 2 MAT scope is going to affect certain package

 3 transactions. That's not an argument to say that

 4 no package transaction should be MAT. I think

 5 spreadover treasuries as well as a lot of curves

 6 and flies are completely able to trade on SEF, but

 7 there are others like invoice spreads and swap

 8 versus swaptions coming down the pipeline where

 9 there is a huge amount of uncertainty about

 10 whether SEFs will be able to support them.

 11 Another reason there is still I think

 12 market discipline restraining any expansion of the

 13 MAT scope is that, you know, for all the talk

 14 about how we should have more methods of execution

 15 available, I mean of the ones that are currently

 16 available the buy-side is still entirely

 17 restricted to one, which is RFQ-to-three. So

 18 until we think about how we can actually embrace

 19 impartial access and make more of the SEFs that

 20 are out there more accessible to a wider range of

 21 market participants, I think there is a kind of a

 22 question, well why are you going to MAT more stuff
 185

 1 if it's still -- if I'm basically confined to

 2 trading on one of two venues.

 3 I think people have made some great

 4 observations for the need for the existing SEF

 5 community and, you know, the liquidity providers

 6 who are connected to further enhance and automate

 7 the processes that allow them to respond to

 8 requests for quotes and to provide pricing back

 9 and to make sure that's done in a more seamless

 10 fashion. I think a number of SEFs still have

 11 bizarre workflows in place that mean that trades

 12 can get executed and sit there for hours before

 13 they actually get, you know, submitted for

 14 clearing. So there is still further clean up that

 15 needs to happen in the post trade process.

 16 And so these are the factors that I

 17 think are restraining it, notwithstanding the fact

 18 that the implementation of SEF trading so far I

 19 think has been a success, it has brought a lot of

 20 improvements to how we do interact in the universe

 21 of products that are currently subject to the MAT

 22 scope and to the current MAT determination. I
 186

 1 think those are the factors that we need to solve

 2 because those are the factors that I think are

 3 leading the market discipline that's restraining

 4 any further expansion for the time being.

 5 MR. SMITH: Thank you, Stephen. Lisa?

 6 MS. CAVALLARI: So I would just briefly

 7 keep a sort of a theme that -- and that goes to

 8 the ramp-up time for the buy-side to be able to

 9 accommodate what any one particular change is

 10 being contemplated, giving the buy-side enough

 11 time to connect, to get up to speed

 12 technologically and not make the assumption that

 13 everybody is trading electronically already,

 14 things that are listed, things of that nature,

 15 because I think the best outcome is one the buy-

 16 side is ready to participate on all fronts. And

 17 that's what we strive to do.

 18 MR. SMITH: Thank you, Lisa. Doug?

 19 MR. FRIEDMAN: I think in addition, and

 20 just restating, we think that the CFTC can take

 21 over the process in terms of paralleling the

 22 clearing process. I think it's important, giving
 187

 1 what we've learned over the last couple of years,

 2 that the CFTC also has to give itself enough tools

 3 to address the market feedback they're getting.

 4 So whether it's, you know, all the market

 5 commentary on readiness or how packages trade or

 6 various things, so that if the CFTC has the tools

 7 to address those market needs, and whether it's

 8 phasing, whether it's no-action relief, or whether

 9 it's if they keep the process as it is in terms of

 10 SEFs, submitting that they've got the appropriate

 11 tools to address what might be somewhat

 12 over-MAT'ing of product.

 13 MR. SMITH: Thank you, Doug. Sunil?

 14 MR. HIRANI: So what's interesting is

 15 that we've had this panel and not one person has

 16 said hey, I want to do another MAT application.

 17 So I think that's a bit telling. So I think the

 18 one suggesting -- I guess two suggestions I would

 19 make is, one is to allow market participants to

 20 also make a MAT application. And I'll repeat an

 21 earlier suggestion that I made is to then have a

 22 public open process where the criteria can be
 188

 1 discussed for its merit and then have, you know,

 2 the Commission outright, or the Commission plus

 3 market participants, you know, in essence codify

 4 the MAT application. And I'll echo what Stephen

 5 said as well, there are some fundamental

 6 infrastructure and package issues that are still

 7 outstanding. I would urge the commission to spend

 8 more time on rectifying the infrastructure and

 9 package issues before trying to be a catalyst for

 10 further MAT applications.

 11 MR. SMITH: Thank you, Sunil. Vincent?

 12 MR. JOHNSON: It's been said, but

 13 basically that SEFs should have to address all the

 14 criteria, that should be submitted to the

 15 Commission, Commission seeks public comment, then

 16 the Commission makes the decision on whether it's

 17 MAT-able.

 18 MR. SMITH: Thank you, Vincent. Arthur?

 19 MR. LEIZ: So I think I said most of

 20 them, but I'll quickly list them. Put some

 21 criteria around the six criteria, some

 22 objectiveness, potentially add three more, minimum
 189

 1 number of SEFs, minimum number of market makers

 2 and, you know, their readiness from a technology

 3 perspective, remove self-certification,

 4 contemplate, you know, a MAT determination

 5 advisory committee, have a minimum listing period,

 6 and then I also think that packages need to be

 7 addressed because I don't think it was

 8 contemplated, or at least it wasn't contemplated

 9 early on that by the virtue of MAT'ing a specific

 10 instrument that anything you may trade with that

 11 specific instrument is all the sudden MAT’ed as

 12 well. So, you know, you should contemplate

 13 looking at a package as an integrated unit and

 14 making the determination as to whether that

 15 integrated unit meets the criteria to be trading

 16 on a SEF. And it's particularly concerning around

 17 the November no-action relief pertaining swap

 18 versus future. There is not a platform in the

 19 world that is currently trading these, yet we have

 20 -- in reality only one can do it, but this is

 21 expiring in four months, and I'd say that the

 22 train has already left the station. These will
 190

 1 not be trading come November.

 2 MR. SMITH: Thank you, Arthur. Angela?

 3 MS. PATEL: I agree with everything

 4 Arthur said and I'm going to just further say that

 5 what you will see happening in November is people

 6 moving off-SEF and creating bespoke swaps to trade

 7 versus futures so that they can go ahead and

 8 continue to implement risk and move risk around

 9 effectively. And I'm a huge fan of a committee

 10 being formed to help ease the burden of the

 11 Commission in evaluating everything. I mean I

 12 think that you've got a fair number of experts

 13 around the table who would be happy to help in

 14 looking at -- or I certainly would -- in looking

 15 at and evaluating things that come in and giving

 16 you an honest, fair opinion as to the viability of

 17 them.

 18 And again just the idea of packages, I

 19 think that we're still far enough ahead of two

 20 very critical relief periods expiring and that

 21 there is still enough time to do what I would call

 22 the right thing for the marketplace.
 191

 1 MR. SMITH: Thank you, Angela. Dexter?

 2 MR. SENFT: Make the process more

 3 objective, bring on the MUTs (laughter), and allow

 4 the MUTs to address the package trade problem.

 5 MR. SMITH: Thank you, Dexter. Bill?

 6 MR. SHIELDS: Certainly allow for more

 7 flexible modes of execution for MAT transactions.

 8 And in regards to the package transactions, look

 9 at allowing for exemptions from the requirement of

 10 execution if the MAT leg's price is contingent on

 11 the other legs of the transaction. This would be

 12 similar to the QCT process that's use by the SEC

 13 where if it's qualified contingent trade, based on

 14 a certain number of criteria the trade can get

 15 executed but not get broken up which would allow

 16 for a more efficient execution and proper hedging.

 17 MR. SMITH: Thank you, Bill. Ron?

 18 MR. STEINFELD: Thanks. We believe the

 19 CFTC is better placed to initiate the MAT process

 20 based on hard quantitative criteria, but

 21 preserving the ability for SEFs and DCMs, as well

 22 as the general public, the buy-side, the sell
 192

 1 side, industry associations, is imperative. SEFs

 2 should absolutely play a role in assisting the

 3 CFTC with their analysis based on their trade

 4 data, based on their tech readiness, based on

 5 connectivity. And just to add, we believe that a

 6 less prescriptive trading methodology for required

 7 transactions would also help out the overall

 8 process.

 9 MR. SMITH: Thank you, Ron. Wally?

 10 MR. SULLIVAN: I think the CFTC should

 11 focus on releasing competitive forces at the core

 12 of the execution process. And again it's around

 13 this issue of anonymity. We feel it's the key to

 14 level the playing field when attracting, you know,

 15 these new diversified and uncorrelated liquidity

 16 into this market which is sorely needed. And also

 17 simultaneously that's what's going to encourage

 18 firms like Javelin to continue to MAT.

 19 MR. SMITH: Thank you, Wally. Ed?

 20 MR. TSAI: So there are obviously a lot

 21 of great practical ideas. I won't repeat those.

 22 I do want to just emphasize the policy objective
 193

 1 driving the MAT determination process, why we're

 2 discussing this.

 3 So we know that when a MAT -- products

 4 mean MAT it means the modalities of trading it are

 5 restricted. Whether or not those created

 6 liquidity impacts and alter the nature of the

 7 trading must be carefully assessed. That's why

 8 there's all of this discussion around putting a

 9 more formalized process around the MAT

 10 determination. We also would like to make sure

 11 that everybody is aware that when you make a MAT

 12 determination, we must leave space for the other

 13 part of the swap market that permits customization

 14 of swaps to meet the needs of market participants.

 15 Those often times cannot be traded on an exchange

 16 effectively. So we want to make sure the MAT

 17 determination doesn't impair the ability to create

 18 customized swaps for the needs of the market.

 19 And I think that a quote from

 20 Commissioner Giancarlo's White Paper is worth

 21 noting, “swap products move to platforms generally

 22 after they are successful, not before.” So that's
 194

 1 really a touch point in terms of how the MAT

 2 process should run.

 3 MR. SMITH: Thank you, Ed. With that I

 4 will bring the Roundtable to a close. I'd like

 5 to thank all of our participants for taking time

 6 out of their busy day to be here with us. I would

 7 also like to thank Chairman Massad, Commissioner

 8 Bowen, and Commissioner Giancarlo for taking time

 9 out their schedule to be here with us today. If

 10 any of you have additional comments we do have a

 11 public comment period of 30 days following this

 12 Roundtable on the CFTC website. Again, thank you

 13 for your participation and attendance.

 14 (Whereupon, at 01:58 p.m., the

 15 PROCEEDINGS were adjourned.)

 16 * * * * *

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 195

 1 CERTIFICATE OF NOTARY PUBLIC

 2 DISTRICT OF COLUMBIA

 3 I, Mark Mahoney, notary public in and for

 4 the District of Columbia, do hereby certify that

 5 the forgoing PROCEEDING was duly recorded and

 6 thereafter reduced to print under my direction;

 7 that the witnesses were sworn to tell the truth

 8 under penalty of perjury; that said transcript is a

 9 true record of the testimony given by witnesses;

 10 that I am neither counsel for, related to, nor

 11 employed by any of the parties to the action in

 12 which this proceeding was called; and, furthermore,

 13 that I am not a relative or employee of any

 14 attorney or counsel employed by the parties hereto,

 15 nor financially or otherwise interested in the

 16 outcome of this action.

 17

 18

 19 (Signature and Seal on File)

 20 -----------------------------------

 21 Notary Public, in and for the District of Columbia

 22 My Commission Expires: March 14, 2018