* CFTC rules would reduce liquidity, burden end users
* Regulators must balance transparency vs confidentiality
* CFTC 60-day comment periods ended on Monday
By Christopher Doering
WASHINGTON, Feb 8 Wall Street banks and major
energy companies urged the U.S. futures regulator to revise new
rules meant to increase transparency in the vast swaps market,
saying they will make hedging riskier and more costly.
Firms including Barclays Capital (BARC.L) and utility giant
Dominion Resources (D.N) registered their objections with the
U.S. Commodity Futures Trading Commission at the end of a
public comment period on the rule, which governs the speed at
which companies must report the details of swaps trades.
It is the latest wave of industry push-back against
regulators that are implementing the sweeping Dodd-Frank
financial reforms passed last July, particularly aspects that
will bring the estimated $600 trillion over-the-counter market
under their oversight for the first time.
The companies argued the CFTC's proposal requiring swap
trades to be reported "as soon as technologically practicable"
could be detrimental to both buyers and sellers, who may need
to protect that information long enough to offset their
position with a hedge in the futures market.
"An appropriate balance must be struck between increasing
price transparency and maintaining confidentiality to prevent
situations where information disseminated to the market might
impact the effectiveness of hedging strategies, create
potential "front running" and ultimately affect the depth and
breadth of the market," Simon Greenshields, co-head of Morgan
Stanley's (MS.N) commodities business, said in a letter to the
To provide counterparties a time buffer before swap trades
are made public, the CFTC also proposed that standardized block
trades and large notional swaps would be held by so-called swap
data repositories, or third-party data collectors, for 15
minutes after they are executed before being released and made
Dominion Resources "has concern that the real time public
availability of certain transactions and pricing data ... can
harm its competitive position as a participant in the
marketplace," wrote vice president David Holden.
Certain legitimate trading, he added, "could spur a market
response that would reduce the market's liquidity."
Dominion, which uses swap trades to reduce fluctuations in
commodity prices, urged the CFTC to allow an exclusion from the
public disclosure of data between two end users or an end user
and a regulated entity tied to swaps that do not perform a
significant price discovery function.
An end user is generally described as an entity such as an
airline, a utility or a farmer that uses swaps for hedging
against volatile commodity prices rather than speculating for a
Metlife Inc (MET.N) said if the costs of hedging insurance
products goes up, consumers may have to pay higher premiums,
and that it may be forced to stop offering certain products.
Todd Lurie, an assistant general counsel with MetLife, said
for block trades to work effectively, their position must not
be reported to the market until it has had time to hedge its
exposure and reduce its market risk.
"Allowing the market access to such critical information
within the time frames contemplated by the Proposed Rules will
provide an opportunity for unaffiliated derivatives traders to
trade ahead of Swap Dealers hedging positions on behalf of
their customers, through the use of high-speed algorithmic
trading programs and other similar means," he said.
(Editing by Russell Blinch and Lisa Shumaker)