New CFTC Rule on Reporting of Swap Trades
By Aline van Duyn
November 19 (The Financial Times)
Swap trades must be reported in “real-time” unless they are large or “block” trades, in which case reporting can be delayed by 15 minutes, according to new rules for derivatives markets proposed by US regulators on Friday.
The Commodity Futures Trading Commission (CFTC), one of the US regulators which has been given responsibility to police the privately traded over-the-counter derivatives markets,also put forward rules relating to swap data repositories and swap data recordkeeping.
The rules are among dozens that the CFTC and the Securities and Exchange Commission (SEC) have to write by July of next year after the passage of financial reform legislation in the Dodd-Frank Act.
The rules, which were discussed at an open meeting in Washington, are being put forward even as some of the basic definitions, which will underpin newly regulated derivatives markets, are still in the works.
Regulators plan to put forward key definitions about what entities will be subject to capitalcharges and other rules for “swap dealers” and “major swap participants” in early December. Definitions for qualifying as a “swap execution facility” (SEF) on which swaps will be traded are
expected later next month.
Scott O’Malia, one of the CFTC’s five commissioners, said he would not support the rules for real-time reporting in their current form because of “a footnote in the rulemaking preamble that admits that there is a lack of public information regarding how market liquidity might be
impacted by the proposed real-time reporting rule”.
“I find this ‘shoot first, ask questions later’ approach to be problematic. I cannot support this rulemaking as drafted,” he said.
There will be a public comment period on the proposed rules, after which they may be revised and then voted on by the CFTC’s five commissioners. The SEC has also put forward proposed rules for reporting, as the SEC will be the regulator for some types of swaps.
The 15-minute delay is being proposed just for standardised block trades. There is not yet a recommendation for delays of large amounts of customised trades. The proposal also suggests that big reported trades just indicate whether or not they are bigger than $250m with
a plus sign, in order to protect anonymity.
Gary Gensler, chairman of the CFTC, said he was “passionate” about increasing transparency for the derivatives market, something he said the big Wall Street derivatives dealers would resist. “Wall Street benefits from information advantages and they will send us hundreds of
comments saying we are hurting liquidity,” Mr Gensler said on Friday.
One controversial issue that has emerged amid the derivatives reform discussions is whether the rules used for clearing futures, under which customer accounts are held in pooled or omnibus accounts, create new risks for derivatives users such as institutional investors.
Instead of proposing rules related to the “protection for the collateral of cleared swaps”, the CFTC said it would seek comments on four possible models. One, which clearing houses have said would sharply increase the costs of clearing, would require individual segregation of each customer’s collateral at all level. At the other end of the spectrum, the CFTC is seeking comments on maintaining the current futures model of an “omnibus account”.
November 19 (The Financial Times)
Swap trades must be reported in “real-time” unless they are large or “block” trades, in which case reporting can be delayed by 15 minutes, according to new rules for derivatives markets proposed by US regulators on Friday.
The Commodity Futures Trading Commission (CFTC), one of the US regulators which has been given responsibility to police the privately traded over-the-counter derivatives markets,also put forward rules relating to swap data repositories and swap data recordkeeping.
The rules are among dozens that the CFTC and the Securities and Exchange Commission (SEC) have to write by July of next year after the passage of financial reform legislation in the Dodd-Frank Act.
The rules, which were discussed at an open meeting in Washington, are being put forward even as some of the basic definitions, which will underpin newly regulated derivatives markets, are still in the works.
Regulators plan to put forward key definitions about what entities will be subject to capitalcharges and other rules for “swap dealers” and “major swap participants” in early December. Definitions for qualifying as a “swap execution facility” (SEF) on which swaps will be traded are
expected later next month.
Scott O’Malia, one of the CFTC’s five commissioners, said he would not support the rules for real-time reporting in their current form because of “a footnote in the rulemaking preamble that admits that there is a lack of public information regarding how market liquidity might be
impacted by the proposed real-time reporting rule”.
“I find this ‘shoot first, ask questions later’ approach to be problematic. I cannot support this rulemaking as drafted,” he said.
There will be a public comment period on the proposed rules, after which they may be revised and then voted on by the CFTC’s five commissioners. The SEC has also put forward proposed rules for reporting, as the SEC will be the regulator for some types of swaps.
The 15-minute delay is being proposed just for standardised block trades. There is not yet a recommendation for delays of large amounts of customised trades. The proposal also suggests that big reported trades just indicate whether or not they are bigger than $250m with
a plus sign, in order to protect anonymity.
Gary Gensler, chairman of the CFTC, said he was “passionate” about increasing transparency for the derivatives market, something he said the big Wall Street derivatives dealers would resist. “Wall Street benefits from information advantages and they will send us hundreds of
comments saying we are hurting liquidity,” Mr Gensler said on Friday.
One controversial issue that has emerged amid the derivatives reform discussions is whether the rules used for clearing futures, under which customer accounts are held in pooled or omnibus accounts, create new risks for derivatives users such as institutional investors.
Instead of proposing rules related to the “protection for the collateral of cleared swaps”, the CFTC said it would seek comments on four possible models. One, which clearing houses have said would sharply increase the costs of clearing, would require individual segregation of each customer’s collateral at all level. At the other end of the spectrum, the CFTC is seeking comments on maintaining the current futures model of an “omnibus account”.
