U.S. District Court Dismisses Bloomberg Suit against CFTC (with Lofchie Comment)

The U.S. District Court for the District of Columbia dismissed a suit by Bloomberg L.P. ("Bloomberg") against the CFTC. Bloomberg had alleged that the CFTC's rule, which sets minimum collateral requirements based on estimated liquidation times for swaps and futures contracts, was both procedurally and substantially defective. Bloomberg's concern was that the potential disparity between the estimated minimum liquidation times for swaps and futures contracts, and the fact that these estimates seemed to favor futures, would have a negative impact on Bloomberg's business and customer base.

According to the Court, however, Bloomberg's injury rises or falls with the actions of the third-party Derivative Clearing Organizations, yet Bloomberg never alleged that any DCO had set or intended to set the liquidation times it considered injurious, instead assuming worst-case scenarios. As such, the Court dismissed the suit for lack of subject-matter jurisdiction.

The Court also dismissed Bloomberg's preliminary injunction request, stating that Bloomberg had not made the requisite showing of imminent and irreparable harm to warrant a preliminary injunction.

Lofchie Comment: While the CFTC has won this litigation, at least in this round, the fundamental policy issue still exists: futures margin is likely to be set at a significantly lower level than swaps margin based on differences in the estimated liquidation times that do not seem justifiable. We will have to wait and see whether Bloomberg refiles the lawsuit after the DCOs announce margin levels.

See: Bloomberg v. CFTC - DC District Court 13-00523 Opinion (6-7-13).