After receiving criticism, Chairman Gensler, the head of the CFTC, defended the agency’s proposals on block trades. Opponents criticize that the methodology was reverse-engineered to ensure that only an intended portion of the market would qualify for exemptions.
Under the rule, trades large enough to be defined as blocks do not have to be executed at a SEF. They have less strict reporting rules, and can be hedged on large transactions. When the CFTC published its original proposals in December 2010, around 5% of the trades would have been classified as blocks. The revised proposals qualify 6% of interest rate swap and credit default swap trades would qualify.
Gensler said the new proposals do not mirror the old. The new proposals split all interest rate swaps into super-major, major, and non-major currencies and divide contracts into eight categories. CFTC commissioner Scott O’Malia claimed that the 67% block trade threshold was raised the day before the new proposals were voted on. O’Malia and Jill Sommers voted against the block proposals. Sommers said that a commissioner pressured for the change.