WASHINGTON Financial players on Wednesday clashed at a public meeting over how much information about swaps they must disclose as regulators get ready to rein in the secretive over-the-counter derivatives market.
Trillions of dollars are at stake and exchanges, big investors and other market players are trying to ensure that the rules go in their favor.
One issue is what kind of swap will be forced onto venues called swap execution facilities that were created by this past summer's Wall Street reform law, and how much information about the trades will be made public.
The trading venues, which market regulators will define, are designed to decrease systemic financial risk and prevent a repeat of what happened when AIG's derivatives holdings threatened to bring down the financial system.
One big investor, the AFL-CIO labor federation, told Securities Exchange Commission and Commodity Futures Trading Commission regulators at the meeting they should move to an exchange model where everyone can see orders.
But PIMCO, the world's biggest bond investment manager, warned against disclosing too much information and forcing more customized swaps onto the swap execution facilities, or SEFs.
"While people have the right to know what is out there, not everyone has right or ability to know every single trade and detail," said William De Leon, PIMCO's global head of portfolio risk management.
"Any SEF model will have to take that into account and be flexible, or you will end up with people who will not want to use it," he said.
Under the legislation, the SEC and CFTC must define what type of swap will be traded on the facilities. The law requires many types of swaps, which allow companies to hedge risk, to pass through clearinghouses to make the trades less leveraged.
Swaps participants expressed concern that there was a very small market for some of the swaps.
Julian Harding, who heads the Wholesale Markets Brokers Association, told regulators that "the new SEF requirement should have required of it a level of transparency that does not hurt liquidity."
Regulators need to decide whether to favor liquidity or transparency. One of biggest clearinghouse operators, IntercontinentalExchange Inc, said both are needed.
"We can't clear a product unless there's a liquid market. and we need pre-trade price transparency," said Jeff Sprecher, IntercontinentalExchange's chairman and chief executive officer.
The SEC and CFTC are under pressure to write dozens of rules for the $615 trillion over-the-counter derivatives market by next July. To meet that deadline, regulators have said they hope to propose draft rules for a host of issues, including swap exchange facilities, by mid-December.
Under the legislation, any swap that clears must trade on an exchange or special facility. Customized swaps are not required to be traded or cleared.
(Reporting by Ann Saphir in Chicago and Rachelle Younglai in Washington. Editing by Robert MacMillan and Dan Grebler)