WASHINGTON The top derivatives regulator sided with the CME Group Inc in a row over client data on Wednesday, a decision which could lead to a contentious lawsuit by a rival firm.
The fight, which has pitted Wall Street against Chicago's powerful commodity traders, comes as regulators finalize many of the new rules of the Dodd-Frank financial reform law.
On Wednesday, the Commodity Futures Trading Commission (CFTC) said it would allow the CME to send swaps trading data to its own data warehouse.
The Depository Trust & Clearing Corporation (DTCC), which performs back-office functions for banks and operates a rival data warehouse, wants clients to have the choice where their data go.
It says the plan of the CME - which operates the world's largest futures exchange - contravenes the gist of the new legislation, and risks fragmenting the data.
In a statement, DTCC's General Counsel Larry Thompson blasted the CFTC's decision, calling it "inconsistent with the principles of the Dodd-Frank Act."
It will "cripple market participant choice, is anti-competitive and compromises regulators and market participants' ability to understand, assess and manage systemic risk effectively," said Thompson, who added that the DTCC will continue to engage with opponents of the CME's plan to determine their next steps.
A spokesman for the CME Group could not be immediately reached for comment.
Data reporting is a central tenet of new global rules to regulate the $650 trillion swaps industry, drawn up after the 2007-09 financial crisis brought to light systemic flaws.
Under the 2010 Dodd-Frank overhaul of Wall Street, data registering trading in complex derivatives will need to be stored in databases called swap data repositories, or SDRs.
The conflict heated up in January, when the DTCC threatened to sue the CFTC if it approved the CME's plan, laid down as rule 1001 in the CME's rule book.
Rule 1001 says that any transaction that runs over its clearing house will be reported to its own swaps data repository. If a client chooses, CME will also share the data with rival SDRs.
Outsiders say the conflict is about who will be the dominant swaps data warehouse and generate more revenue, making the data more valuable and in turn lure more clients.
Under new global rules, swaps will need to be traded on exchange-like platforms, with central clearing houses standing in between buyers and sellers to reduce risk.
LCH.Clearnet, which is being bought by the London Stock Exchange, dominates interest rate swaps clearing, while the Intercontinental Exchange is the biggest player by far in clearing credit-default swaps.
Unlike the CME or ICE, DTCC does not offer clearing services. Instead it is relying on LCH.Clearnet to receive sufficient data in its SDR.
The CME has no such dominant position in either of these two products, but hopes to build up substantial market share in new areas that will need to be cleared from next week, because of the tighter rules.
(Editing by Jacqueline Wong)