Battle Over Swaps Trade Reporting (with Lofchie Comment)

The CFTC is extending the time period for which it is reviewing a request from the Chicago Mercantile Exchange Inc. ("CME") for approval of proposed CME Rule 1001 submitted pursuant to CFTC Rule Section 40.5. Essentially, the proposed CME Rule would require that swaps cleared on the CME be reported to the Swap Data Repository ("SDR") maintained by the CME. As we had previously reported, the CFTC would have originally required that the parties to a swap be able to select the SDR to which their data would be reported. This CFTC position had been challenged in court by the CME, and, in order to avoid that litigation, the CFTC had allowed the CME to submit a rule proposal that would allow the CME to mandate a link between clearing and trade reporting. See, e.g., CFTC Accepting Public Comment on an Amended Request from the CME to Adopt New Chapter 10 ("Regulatory Reporting of Swap Data") and New Rule 1001 ("Regulatory Reporting of Swap Data") of CME’s Rulebook.

The review period is being extended 45 days to expire on March 6, 2013.

Lofchie Comment: Responses to the CFTC's proposal (a link to the letters is provided in the box below) have been largely based on the party's economic interests. Those parties that saw the CME's proposal as depriving them of a business opportunity (DTCC) or raising costs to them (i.e., sell-side organizations and the majority of buy-side organizations) opposed the CME's proposal. Those parties that saw the CME's proposal as providing them with a business opportunity (other swaps clearing corporations) or lowering costs to them (some buy-side organizations) favored the CME's proposal. From a public policy standpoint, one fundamental issue is whether swap data should be subject to a forced centralization at a single SDR, which would favor reporting to DTCC. Beyond that, the fight over this issue is generally indicative of the manner in which Dodd-Frank will allow or require the government to determine economic winners and losers by virtue of the rules that the government adopts. This is a result that is obviously not limited to Dodd-Frank. In fact, in the securities markets, there is an ongoing battle that sometimes comes into public view as to who owns, and is allowed to profit from the ownership of, data as to the securities transaction information. The battle over this swap data is in large part another version of that same fight over who has ownership of transaction information.

View Press Release in full here (links externally to CFTC website).View: Collected comment letters on the CFTC website.