While Wall Street watchdog Commodity Futures Trading Commission (CFTC) has asserted that the majority of derivatives should be cleared using swap execution facilities (SEF), this view has met stiff resistance from industry insiders.

Banks are arguing that while highly liquid financial products are suitable for electronic trading, other financial instruments should be traded via voice, according to Financial News. These market participants believe that forcing the bulk of derivatives to be traded via SEF will raise costs for both banks and the users of the risk management tools. Rising costs of hedging risk could put pressure on users to utilize other financial instruments.

The media outlet reports that the CFTC takes a different approach, arguing that utilizing SEFs will lower costs for users of derivatives. The agency stated earlier in 2011 that failing to push these derivatives trades to electronic exchanges will increase the opaqueness of pricing the financial instruments.

Electronic trading of swaps has risen significantly in anticipation of adopting the new regulations. Tradeweb Markets LLC announced in a statement released October 3 that trading activity on its global interest rate derivatives platform spiked 90 percent between Q3 2011 and the same period in 2010.