CME gets more time in U.S. compliance spat with regulator

Tue Nov 13, 2012 11:02pm EST

Nov 13 (Reuters) - U.S. exchange operator CME Group has been granted more time to report trading data by the Commodity Futures Trading Commission after it sued the regulator in a spat over compliance that has split the derivatives industry.

The CME is suing the markets watchdog, seeking to prevent the enforcement of rules that require it to report swaps transaction data to a third party and which were due to go into effect on Tuesday. T h e CME wants to rely on its own data warehouse, or Swaps Data Repository, instead, and is seeking permission from the CFTC to operate one.

The CFTC has now granted the CME until Dec. 4 to comply with the rules but it remains unclear whether this extension means it is likely to gain permission for its own data warehouse.

The CME's lawsuit is one of growing number of challenges to the 2010 Dodd-Frank law that is designed to avoid a repeat of the global financial crisis. One of the law's aims is to shed greater light on the commercially lucrative derivatives industry.

A letter obtained by Reuters and confirmed by the CFTC as authentic said the regulator "has determined to further extend the period of no-action relief, and will not recommend that the Commission commence an enforcement action against CME Clearing".

A CME spokesman would not say if the exchange operator would drop its lawsuit now that the CFTC had granted it a reprieve.

Swaps -- a catch-all phrase for many kinds of often highly complex and lightly regulated financial instruments -- will need to be traded on exchange-like platforms in what is expected to lead to an overhaul of the lucrative business.

They will in large part also need to be cleared and transaction data will need to be centrally stored in data warehouses.

A CME competitor, the Depository Trust and Clearing Corporation, on Monday filed a motion with the U.S. District Court in Washington, saying the CME's lawsuit against the regulator could disrupt the regulatory regime mandated by the Dodd-Frank Act and was against the public interest.

The DTCC already operates its CFTC-approved data warehouse, and the CME wanted to avoid having to hand over the transaction data to its rival. The Intercontinental Exchange also has a license to operate a data warehouse. The number of operators is expected to stay low.

The International Swaps and Derivatives Association lobby group has also distanced itself from the CME, warning that a proliferation of data warehouses is likely to harm transparency.