Nebulous at best, a precise definition for an organized trading facility in Europe has evaded dealers and inter-dealer brokers alike since the term first emerged in the original proposal for the Markets in Financial Instruments Directive Review (MiFID II).
While there has been a temptation to draw parallels with swap execution facilities in the U.S., one principal difference has remained. While U.S. legislators have deemed that SEFs cannot be dealer-owned, that door has so far remained open in Europe.
This has been a ray of light for those banks that have invested hundreds of millions of dollars in single dealer platforms. Far from becoming redundant in the new reform paradigm, SDPs could yet enjoy a renaissance as OTFs in the emerging market infrastructure.
But is that still the case? Consider the latest wording of the draft reform:
In order to make European markets more transparent and to level the playing field between various venues offering trading services it is necessary to introduce a new category of organized trading facility (OTF). This new category is broadly defined so that now and in the future it will capture all types of organized execution and arranging of trading which do not correspond to the functionalities or regulatory specifications of existing venues. Consequently appropriate organizational requirements and transparency rules which support efficient price discovery need to be applied.