CME Sues CFTC Over Reporting Rules for Cleared Swaps (with Lofchie Comment)

The Chicago Mercantile Exchange sued the CFTC as to its rule making (at 77 Fed. Reg. 2136 - Jan. 13, 2012, codified at 17 C.F.R. Part 45) insofar as the CFTC rule would require CFTC-registered derivatives clearing organizations ("DCOs") to provide nonpublic regulatory reports of cleared swap transactions to Swap Data Repositories ("SDRs"). Among the bases for the complaints are that (i) the CFTC is not authorized by the statute to issue the rule; (ii) the CFTC has not performed any cost-benefit analysis of the rule; (iii) the CFTC has issued an interpretation of its rule that is inconsistent with the terms of the rule; and (iv) the inconsistent interpretation is in effect a rule amendment that has not been properly vetted for public comment as required by the Administrative Procedure Act.

Lofchie Comment: The CME's lawsuit raises a variety of issues as to the particular matter that is the subject of the lawsuit, but it also raises a more general question as to the whole rule making process: e.g., do the rules work together as a set? are they too hastily adopted? are the rules internally consistent? The particular issue raised by the CME happens to be important enough to the CME to go to the expense and risk of directly challenging its primary regulator in court. That said, there are numerous other CFTC Rules that have similar problems of inconsistency (or impossibility) that are causing material problems for market participants, but that do not justify the expense or risk of market participants challenging their regulator. In this regard, it is perhaps instructive to review a speech by Commissioner O'Malia as to the CFTC rule making process and to acknowledge the validity of the points that he made.

Link here to lawsuit: CME vs. CFTC.Link here to CFTC Rules (subscribers only). (Note that the link takes you to the cover page for the CFTC rules. You must then then go to the TOC on the left and select the particular rule.)Link here to77 FR 2136 (CFTC site).