By Mike Kentz
NEW YORK, Jan 11 (IFR) - The CME Group and Depository Trust
and Clearing Corporation are locked in a controversial battle
regarding the dissemination of cleared swaps data to regulators
and the public, a primary tenet of the G20 regulatory
commitments and Dodd-Frank statute, and a rule whose deadline
was extended by the Commodity Futures Trading Commission on
The CME, one part clearinghouse and another part
data repository, has argued since the summer that it should be
allowed to funnel proprietary cleared swaps data to its own
repository, a proposal it claims will reduce costs and add
efficiency to the market while keeping the organisation in
compliance with Dodd-Frank.
Meanwhile, the DTCC, an established repository that does not
maintain an OTC clearing service, has been arguing that such a
framework would reduce transparency and efficiency since data
will be fragmented across several repositories and force swap
dealers to comply with duplicative reporting requirements.
The debate picked up pace in October when the CME filed a
lawsuit against the CFTC after the regulator released documents
suggesting the CME would not be able to operate its clearing
service and repository in conjunction with each other.
The CFTC subsequently amended the documents to delete that
particular language and CME dropped its lawsuit, re-filing an
amendment request whose comment period was scheduled to close
last Monday. The CFTC extended the comment period at the last
minute for one week, at the request of the DTCC.
The request was made because additional language was changed
in December that DTCC felt needed more time for the market to
digest, Larry Thompson, general counsel at the firm, told IFR.
Thompson filed an additional comment letter, the sixth of the
period by the firm, last week.
At the crux of the debate is the reporting obligation, which
the CME claims should fall on the clearinghouse since when swaps
are cleared they are novated into two separate swaps by the
exchange and then reported.
CFTC rules placed the reporting obligation with the main
counterparty of a swap in the past, but the regulator has been
silent on the issue over the last few months. That framework
would benefit the DTCC, which has been chosen through
industry-led tenders to be the repository of choice across the
five major asset classes.
The CME claims its proposed framework would reduce costs for
counterparties and add efficiency to markets, as well as
satisfying the Dodd-Frank mandate for increased transparency.
"A clearing organisation reporting to its affiliated swap
data repository will always be the most efficient equation," a
clearinghouse lawyer told IFR.
But some argue the opposite. Swap dealers, who would prefer
to report all uncleared and cleared swaps data for a given asset
class to one specific repository, would be forced to report
certain swaps twice under the CME's preferred framework.
Additionally, data collection on the part of regulators would
become less efficient, say some industry trade bodies, as they
will be forced to aggregate across a plethora of repositories.
Commercially, the CME and other derivatives clearing
organisations would stand to profit from the set-up. The CME
would, by default, would become the primary repository for
counterparties choosing to clear certain swaps at its
clearinghouse. The organisation is backed, publicly at least, by
fellow clearer InterContinental Exchange, the Commodity Markets
Council, and the Working Group of Commercial Energy Firms.
ICE, CME, and a handful of other exchanges are all
members of the CMC. The Working Group of Energy Firms does not
divulge its membership but is represented by Michael Sweeney,
partner at Sutherland Asbill. Sweeney declined to name the
Working Group's members.
Suggestions across the market are that CME is the main
driver behind the lobbyist group, though a CME source could not
confirm whether or not the firm is even a member.
The DTCC's opinion is backed publicly by trade groups the
International Swaps and Derivatives Association, the Securities
Industry and Financial Markets Association, a group of energy
trade associations including the Edison Electric Institute, and
swap dealer Deutsche Bank, among others.
"CME proposes to illegally tie CME's SDR and DCO services by
requiring its clearing customers as a condition to using its
clearing services to have CME direct their cleared trades to
CME's own captive SDR," wrote Thompson in his most recent
"This proposed tying of services is contrary to the fair and
open access core principle set forth for DCOs in the Dodd-Frank
Act - the Dodd-Frank Act's prohibition of market infrastructures
from engaging in anti-competitive practices-and the US antitrust
The CME, in retort, argues the DTCC is similarly aiming to
institute a regulatory scheme that would benefit its own
"Ultimately, DTCC appears to be dissatisfied with the
approach taken in Rule 1001 [CME's request] because that
approach does not comport with the scheme that DTCC desires-one
in which swap dealers would be able to dictate to clearing
organisations the SDRs to which clearers must report [swap
data]," wrote Tim Elliott, associate general counsel at the CME
in the request.
"Copying an existing file and sending it to another
registered entity within CMEdoes not trigger the kind of dire
consequences that DTCC seems to fear," he added.
Market participants say the CME's legal interpretation of
Dodd-Frank is not necessarily inaccurate and from a commercial
standpoint makes sense. But many agree that a proliferation of
swaps data repositories, a possible by-product of a ruling in
favour of the CME, would fly in the face of regulatory
commitments to increase transparency in the swaps market.
The comment period now closes Monday 14 January.
(This article will be published in the Jan 12 issue of
International Financing Review, a Thomson Reuters publication;
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