Traditionally system operators would minimize generation cost considering transmission as a passive system. Having the smart grid technology transmission network topology can be optimized simultaneously with the generation system. This can be done either by switching lines on and off, or by continuously controlling the admittance of the lines. FACTS devices make adjustment of a transmission line's admittance possible. Here we study a market design for operation of such FACTS devices based on Supply Function Equilibrium (SFE). We model the variable cost associated with utilization of the FACTS devices as the relative additional cost of losses. The owners are being paid the market clearing price for the additional transfer capacity they provide. The problem is formulated for a simple two-node two-transmission line system. It is shown that the marginal cost functions are increasing and it is not clear that FACTS devices are natural monopoly. Our simulation study shows that a market-mechanism can be employed for operation of the devices. Under the market mechanism that we consider, owners of FACTS devices are permitted make supply offers to the market alongside generators. Market-clearing consists of determining nodal prices for generators and admittance-based pricing for transmission or FACTS device owners. Such a market would be beneficial to the device owners by providing revenue for them and the system by increasing the social welfare.