By John McCrank and Tom Polansek
(Reuters) - CME Group Inc, the biggest U.S. futures market operator, has applied with the Commodity Futures Trading Commission to register as a swap execution facility (SEF), an exchange-like platform created as a result of the global crackdown on the derivatives that helped bring the 2007-2008 credit crisis.
Regulators in major financial markets around the world are rewriting the rules on swaps, the over-the-counter securities that derive their value from interest rates, credit, foreign exchange, equities and commodities - estimated to be a $630 trillion market.
Wall Street banks trade swaps in privately negotiated deals, largely over the phone, through a handful of brokers such as Britain's ICAP Plc. Regulators want to shed more light on the lucrative market.
New rules, part of the 2010 U.S. Dodd-Frank law intended to overhaul Wall Street after the financial crisis, will put an end to privately negotiated swaps trading.
With the move to SEFs, swaps will be traded on exchange-like platforms. Deals will take place through the same type of order books that exchanges use, or by requesting quotes from at least two market parties. The number will go up to three parties after a phase-in period.
Chicago-based CME said its SEF would be available via its CME Direct platform, which provides access to the exchange operator's futures and over-the-counter markets in energy and metals.
CME, which owns the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange, plans to initially launch the SEF with commodities and is weighing customer demand for other asset classes. It said an announcement about specific products would be made at a later date.
The SEF will allow CME customers to execute swaps alongside listed futures, according to the exchange operator.
Under its previous chief executive, CME had indicated it was not focused on launching a SEF.
In a July 2010 earnings call, former Chief Executive Officer Craig Donohue said CME intended to "support market participants who may be developing swap execution facilities" and that the company's "primary commitment is really to support our customers with clearing services," according to a transcript of the call.
Donohue stepped down from CME last year. He was succeeded by Phupinder Gill, who had been CME's president.
Damon Leavell, a spokesman for the exchange operator, on Wednesday said that it has "always been a goal" of CME to provide customers with choices and that some may prefer swaps over futures.
"Even in the early days of Dodd-Frank, we always said we reserved the right to operate a SEF depending on how the market evolved," he said.
The swaps market is dominated by large banks such as Citigroup Inc, Bank of America Corp, JPMorgan Chase & Co and Goldman Sachs Group Inc. Virtually all trading volume between them takes place through the brokers.
Other firms looking to become SEFs include ICAP, Bloomberg LP; TradeWeb, which is majority-owned by Thomson Reuters; and MarketAxess.
(Additional reporting by Douwe Miedema in Washington and Ann Saphir in San Francisco; Editing by Jeffrey Benkoe and Leslie Gevirtz)