Bank of England: U.S. swap rules help lower trading costs
The Bank of England on Jan. 15 released a staff working paper studying the impact of Dodd-Frank rules requiring that certain interest rate swaps be traded on swap execution facilities. The study estimated that SEF trading has increased liquidity for U.S. dollar-denominated swaps and reduced execution costs for end-users by about $7 million to $13 million per day.
The study also found that the trading mandate has caused a split between the U.S. and European swap markets, but said this fragmentation has not had a detrimental effect on trading costs.
“Overall, our results show that the increased transparency and competition that SEFs brought about significantly improved trading conditions for swaps, especially those that were forced to trade upon them. This result, which increased pre- and post-trade transparency, improves liquidity chimes with those from work on other asset classes,” the study found.
