CFTC Seeks Clarity in Swaps-Data Reporting

The Commodity Futures Trading Commission (CFTC) is looking to over-haul the way in which swaps-data reporting is done in an attempt to better make use of the information it receives.

The CFTC has released a request for comment on around 70 questions regarding swaps-data reporting and how to use the data it collects from companies like Depository Trust & Clearing Corp. and CME Group Inc.

Both the CFTC and the SEC were made responsible for collecting swaps-data after the financial crisis of 2008 in order to bring more transparency to the market and point out risks in the system before they lead to another crisis.

Currently, regulators are finding it very difficult to make sense of the information they are receiving on the almost $700 trillion dollar swaps market in a timely manner, which is raising concerns among market officials.

It seems the swaps-data reporting overhaul has been a long time coming. CFTC Commissioner Scott O’Malia had mentioned issues with reporting last year, saying that the data they were collecting was not helping the regulator detect the issues it’s working to protect against.

Other than what to do with the data it collects, the agency will be looking for advice on just how to go about collecting the data. It’s currently defending itself in a lawsuit with the DTCC over its current methods, with the DTCC saying that the CFTC allowing CME Group Inc. to report data on its own databases is anticompetitive and counterproductive to reducing transparency.

CFTC Investigating Preferential Treatment of High Speed Trading Firms

The Commodity Futures Trading Commission (CFTC) is looking into deals given to high speed trading firms by exchange operators.

The investigation is based on concerns that high speed trading firms are receiving incentives and discounts in the market that other investors don’t normally have access too.

Without these discounts, regulators are worried that less-influential investors are at an unfair disadvantage.

High speed trading firms utilize sophisticated trading platforms capable of making a large number of trades in less than a second. While making up close to half of total stock market volume, high speed firms have come under scrutiny a few times in the recent past, particularly after the role computerized trading played in the “flash crash” in 2010 where the stock market plummeted and made an almost complete recovery in a matter of minutes.

The CFTC will be looking at communication records between futures exchanges and certain traders, as well as checking payment records for discounts.

The commission is hoping to make sure that all deals offered to high speed trading firms were also made available to other traders.

Inscentive programs are common in most trading markets, and many say that they increase orders placed through the exchanges, increasing liquidity. The CFTC however, is worried that high speed trading firms may be able to take advantage, boosting volumes while harming other investors.

European Traders Seek Delay in Overseas Trading Restrictions

The Commodity Futures Trading Commission may be delaying overseas trading restrictions that are set to go into effect next week.

European Traders are claiming that they need more time to comply, ensuring that overseas trading will be able to continue.

In an attempt to ease tension with European regulators, the CFTC will hold off on instituting several rules it has created in regards to overseas trading, allowing Europe to catch up on its own rule making process.

The CFTC and the European Union had been butting heads over derivative regulation for some time. While the CFTC has been moving very quickly and aggressively on derivative trading reform, the EU has taken a much slower approach, causing problems for overseas traders.

Last month however, the two regulators came to an agreement in which the CFTC would allow US traders to trade on European platforms, so long as the platform follows rules that are comparable with US platforms.

However, some trading firms based in London are now saying that they need more time to comply than the March 24th  deadline will allow. Currently, no European firm has filed paperwork saying that they are currently being regulated in a similar fashion to US platforms.

The CFTC says it will only consider a delay after receiving a formal request from European Officials or trading platforms, which, so far, has not happened.

While there is no guarantee that there will be a delay in overseas trading restrictions, European trading firms are hoping to have the deadline moved to July 1st.

Commissioners Unhappy With CFTC No-Action Letters

Several commissioners have spoken out over the CFTC’s no-action letters, claiming that many of them were instituted hastily, leaving little time to review or edit them.

The Commodity Futures Trading Commission has put in place almost 70 rules since the 2010 regulatory reform law was put into place. Of these rules, 36 were related to Dodd-Frank. However, within these 36 rules, over 200 no-action letters or other forms of guidance have had to be issued after the rules were instituted.

Some commissioners have defended the CFTC no-action letters, saying that their use was inevitable, as overhauling the operations of the $600 trillion dollar derivatives market is no small task. As former commissioner Micheal Dunn explained it to Risk.net, “You can’t make an omelette without breaking some eggs.”

Most commissioners agree that some no-action letters will be necessary. However, it seems for many commissioners, the issue revolves around how the CFTC no-action letters were instituted.

Commissioners have pointed out that while some of the no-action letters are only temporary, quite a few of them are indefinite or permanent. Many of the commissioners only received notice of the letters the night before they were issued, which has them feeling as though their input had not been considered over what is essentially a complete change in policy.

CFTC chairman nominee Timothy Massad recognized the need for a more streamlined and organized rule making process while being questioned at a confirmation hearing by the Senate.

While former CFTC chairman Gary Gensler spent most of his time putting many of the Dodd-Frank rules into place, it seems Massad’s focus will fall on figuring out how to amend and enforce these rules.

Commissioner Chilton to Leave CFTC Next Week

CFTC Commissioner Bart Chilton has announced that he will be leaving the Commodity Futures Trading Commission by the end of next week.

Chilton, who had said he would be leaving the CFTC in November, has stated that he will step down from the Commission by March 22nd.

Though he announced his departure months ago, Chilton had decided to stay on for a little longer than planned, most likely to serve as an extra hand at the commission, which would have been running with only two of the five commissioners it requires had he left.

However, now that the Senate has met with, and seems likely to accept, the three replacement nominees set to join the CFTC, Chilton may feel as though he can step down without causing any issues.

Along with former chairman Gary Gensler, Chilton was among the most vocal supporter within the CFTC for stricter position limits for traders and other largely contested rules formed from the Dodd-Frank Act.

Chilton plans to finish writing his book, “Theft” which will detail the relationship between Wall Street and Washington, telling Bloomberg in an interview “I have a book to write, and I want to get to it.”

Chilton will be succeeded by Sharon Y. Bowen, pending her likely approval from the Senate.

Judge OK’s DTCC CFTC Lawsuit

A US federal judge has ruled that part of a lawsuit filed by Depository Trust & Clearing Corp (DTCC) against the Commodity Futures Trading Commission (CFTC) will be allowed to proceed.

The DTCC CFTC lawsuit was filed by the DTCC over the how the CFTC allowed CME Group Inc and IntercontinentalExchange to gather market data.

The DTCC had actually filed 4 claims against the CFTC in the lawsuit. However, US District Judge Amy Jackson dismissed three of them, citing that the court could not review claims that did not involve a final action by the CFTC. Two of the claims involved actions approved via the CFTC’s “self-certification” process, with a third being about changes made the frequently asks questions section on the CFTC’s website.

The Dodd-Frank Act requires all trade data for over-the-counter derivatives  to be stored in swap data warehouses for easy monitoring. The DTCC is suing the CFTC for allowing CME Group Inc and IntercontinentalExchange to use their own proprietary data warehouses. The DTCC, which operates its own rival data warehouse, has claimed this to be anticompetitive.

With this being the main purpose behind the DTCC CFTC lawsuit, it seems the DTCC is happy to be able to move forward, even without the other aspects of the suit. A member of the DTCC tell Reuters, “We are pleased that the judge has given the green light to the core of our case. We continue to believe that CME Rule 1001 is anticompetitive and undermines the core pro-competitive principles of the Dodd-Frank Act.”

CFTC and FERC Reach Data Sharing Agreement Through MOU

The Commodity Futures Trading Commission and the Federal Energy Regulatory Commission have released a “Memorandum of Understanding” (MOU) detailing their agreement to share market data between one another.

The MOU was put in place in early January, and the CFTC and FERC began more freely transmitting market data to one another just last week.

As it turns out, getting the two regulators to share market data has been a long time coming, with the need for an agreement being first discussed over three years ago.

The MOU will ensure that market data needed by either regulator will be quickly and easily shared between them. Previously, requests for market data had be placed and reviewed on a case-specific basis.

The announcement of a more free flowing form of data sharing between the regulators was announced on March 5th, along with an Interagency Surveillance and Data Analytics Working Group that will coordinate the sharing of data and help focus on, among other things, data security and data sharing infrastructure.

The sharing of data between the CFTC and the FERC marks progress, and should certainly help to create a safer and more transparent market.

CFTC Chairman Nominee Timothy Massad Likely to Be Approved by Senate

It looks as though CFTC chairman nominee Timothy Massad will be approved by the Senate, after dispelling any doubt about his commitment and experience at a hearing in Washington yesterday.

The Senate was initially unsure about President Obama’s choice in replacement for Gary Gensler, based on a lack of experience in many of the areas the CFTC regulates. However, after discussing his relevant experience and vowing to uphold a strong enforcement program, it seems the Senate has found no reason to doubt the CFTC chairman nominee.

Massad, having recently lead the unwinding of the Troubled Asset Relief Program (TARP), feels that this, along with his time as a corporate finance attorney, has given him enough experience with regulation and derivatives to be able to handle the responsibilities of the CFTC position.

Massad will be replacing Gary Gensler as the new CFTC chairman. While Gensler spent his time as chairman putting a large portion of the rules instituted by the Dodd-Frank Act into play, it seems Massad’s time will be spent enforcing these rules.

Massad was one of several CFTC nominees to speak on their experience in front of the Senate yesterday, being joined by Sharon Bowen and J. Christopher Giancarlo, who also seem likely to be approved.

Should all three be approved, the CFTC will have a full staff in terms of commissioners once again, as the commission is currently operating with only three of the five it requires.

Senate Questions New CFTC Nominees

The three CFTC nominees waiting for approval to join the Commodity Futures Trading Commission are now facing some questions at a Washington approval hearing from the Senate over how much they will be willing to enforce the rules put in place by the Dodd-Frank Act.

Among the nominees is President Obama’s choice for CFTC chairman, Timothy Massad. Drawing skepticism from the senate, some are worried that Massad doesn’t have much of a record or policy in regards to what the CFTC regulates.

Outside of Massad, CFTC nominees Sharon Y. Bowen and J. Christopher Giancarlo, who are slated to take on roles as commissioners, will also be answering some questions for the Senate.

Among the concerns, it seems those involved in the matter are eager to hear about the CFTC nominees’ views on speculation in commodity markets and the reach of Dodd-Frank rules overseas.

Upon, approval, these CFTC nominees will significantly change the make-up of the Commission’s current leadership. The CFTC is already only operating with three of the five commissioners it’s supposed to, and with commissioner Chilton on his way out, they will actually be making up the majority of the Commission’s leadership.

Swaps Market Reform Has Little Effect on Trading Patterns

It’s been two weeks since the swaps market reform has forced banks and traders onto SEFs, and so far little has changed.

After making large scale changes to the swaps market in an attempt to increase transparency and competition within the market, it seems banks and other traders are still  mostly trading amongst themselves.

It was hoped that this swaps market reform would help promote trading between these two groups. But, even without this, the market will at least be more transparent.

Before swaps were regulated, it was very difficult to see just how interconnected banks were, as most trades were handled over the phone. It’s thought that this helped exacerbate the 2008 financial crisis. With trades having to be done over SEFs, they can now be recorded and monitored.

On another note, it seems that the push to SEFs hasn’t had much of an effect on liquidity either. While the market did see a 30-40% drop in total trade volume during the first week, it is already back to average levels, according to Bloomberg.

The CFTC granted a three month delay to package swaps, which some think may be part of the reason  for the rather anticlimactic results.

Currently, SEF members aren’t commenting on the matter, feeling as though two weeks is too soon to begin making assessments of the market.