CME vs. CFTC vs. DTCC: The Future of Swaps Regulation

CME Group’s lawsuit against the CFTC over swaps regulation has a new twist: The Depository Trust and Clearing Corp (DTCC) is evaluating legal action against CME should the case move forward.

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. The case CME plans to bring against the CFTC will challenge 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 hasn’t yet granted CME’s request to become an SDR, it has approved the DTCC’s request. If SDRs are challenged in a fundamental way, DTCC stands to lose a lot of 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.

CME vs. DTCC: Industry Not Unified

The introduction of DTCC into the fray suggests that the industry position on the issue of swaps regulation is not totally unified.

Last week, the International Swaps and Derivatives Association, a lobby for the industry, also positioned themselves against the CME case. Apparently, ISDA does not want the rejection of SDR reporting as it currently stands to lead to the proliferation of data repositories.

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