WASHINGTON, April 16 Data vendor Bloomberg L.P. filed a lawsuit on Tuesday against the top U.S. derivatives regulator to fight a new rule that would make the trading of swaps more expensive and hurt its business.
Bloomberg is one of a dozen or so providers that plan to launch platforms on which to trade swaps, as regulators globally crack down on the $650 trillion market to prevent a repeat of the 2008 financial crisis.
Under a rule by the Commodity Futures Trading Commission (CFTC), buyers and sellers of swaps must set aside enough money - so-called margin - to cope with the impact of a deal falling apart, assuming it takes five days to unwind the position.
But for futures, a rival type of product, the assumption is that deals can be unwound in one day, making them far cheaper to use.
"These arbitrary requirements are the result of a flawed rule-making process and a patently deficient cost-benefit analysis," said Eugene Scalia, Bloomberg's high-profile lawyer. "The rule will have a serious adverse effect on the market."
The CFTC declined to comment on the lawsuit, filed in federal court in Washington, D.C.
Underlying the lawsuit is a looming battle between exchanges and investment banks over who rules the lucrative derivatives market, a vast playground for speculators, parts of which were long unregulated.
Exchanges dominate the futures market, which have been regulated for decades and now operate at a lower cost because of the CFTC's rule.
The banks hold sway over the swaps market, and fear clients will defect to the exchanges, hurting their revenues as well as the trading platforms - called Swap Execution Facilities (SEF) - Bloomberg and others want to launch.
Under the new rules, clearing houses need to stand between buyers and sellers of swaps to reduce the risk of a market rout. The margin is posted with the clearing house.
A further complication is that the CFTC has still not issued a final rule for the SEFs, making it hard for providers to plan their business. The longer it takes for the SEF rules to come out, the more favorable for the futures industry, these providers say.
The CFTC is vulnerable to lawsuits as it rushes through the new rules it has been tasked with by the 2010 Dodd-Frank overhaul of Wall Street much quicker than regulators such as the Securities and Exchange Commission.
Scalia has a history of filing often successful lawsuits against regulators. In September, a judge knocked out a CFTC rule to curb commodity speculation he had launched on behalf of the investment banking industry.
In December, a federal judge ruled against two industry trade groups that had sought to block a rule to register with the CFTC, a requirement that they said duplicated a similar rule from the Securities and Exchange Commission.
Both cases are under appeal.
Bloomberg is a competitor of Thomson Reuters Corp.
The case is Bloomberg L.P. v United States Commodity Futures Trading Commission, U.S. District Court for the District of Columbia, No. 13-523.