The U.S. Commodity Futures Trading Commission (CFTC) is set to decide on a rule that could embroil swaps regulation in a lawsuit between CME and DTCC. The rule was delayed last week when the CFTC chose to extend the public comment period on an amendment proposed by CME. The amended rule states:
“For all swaps cleared by the Clearing House, and resulting positions, the Clearing House shall report creation and continuation data to CME’s swap data repository for purposes of complying with applicable CFTC rules governing the regulatory reporting of swaps. Upon the request of a counterparty to a swap cleared at the Clearing House, the Clearing House shall provide the same creation and continuation data to a swap data repository selected by the counterparty as the Clearing House provided to CME’s swap data repository under the preceding sentence.”
CFTC, CME, DTCC
CME Group is the country’s largest futures exchange and the operator of the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange. In October, CME brought a case against the CFTC that challenged the regulatory agency’s ability to enforce reporting rules for swaps trading. More specifically, CME does not want to be forced to release previously non-public reports on cleared swap transactions to CFTC-mandated swap data repositories (SDRs).
Enter DTCC
This is where DTCC comes into the picture. Although the CFTC eventually granted CME’s request to become an SDR, it had already approved DTCC’s request. If SDRs are challenged in a fundamental way—by allowing CME to function simultaneously as an SDR and a clearinghouse—DTCC stands to lose business.
“DTCC has significant concerns with the potential negative consequences of a judicial challenge or Commission action to remove the necessity for a legal dispute,” DTCC said in a letter to CFTC Chairman Gary Gensler.
Yet CME would prefer to avoid distributing information to a third party. The case, should it develop, will likely hinge on whether the added cost of implementing a third party is necessary and helpful in terms of transparency. CME already functions as a clearinghouse, and so it believes that employing a third party is unnecessary.
