WASHINGTON The top U.S. derivatives regulator won a legal victory over Bloomberg LP late on Friday, when a court dismissed a case the data vendor had filed that claimed a new rule on trading swaps would hurt its business.
Bloomberg is one of a dozen or so providers launching a platform on which to trade swaps, as regulators across the world crack down on the $630 trillion market to prevent a repeat of the 2008 financial crisis.
But that effort would be hurt by a new rule from the Commodity Futures Trading Commission which will force buyers and sellers of swaps to set aside enough money - or margin - to cope with the impact of a deal falling apart, Bloomberg had argued.
That is because the margin on a swap should be enough to cover five days of unwinding the position, but only one day for futures, a similar type of product traded on rival exchanges, making them cheaper to use.
The court said, however, that Bloomberg had provided no evidence that this requirement would hurt its business.
"Bloomberg ... simply assume the worst-case scenario ... without grounding their assumption in the actual behavior," it said in its ruling.
On another point, it said that the "plaintiff's contentions in this regard are remarkably perfunctory and devoid of factual support."
Bloomberg will continue to press forward with its legal challenge, a spokesman said.
Commissioner Bart Chilton said in a statement that the CFTC could focus on the task ahead of tightening regulations of swaps now that "another attempt to second-guess regulators on financial reform measures sought by Congress and President (Barack) Obama" was behind it.
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, which dominate the futures markets, 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.
Bloomberg is a competitor of Thomson Reuters Corp.
The case is Bloomberg LP v United States Commodity Futures Trading Commission, U.S. District Court for the District of Columbia, No. 13-52
(Reporting by Douwe Miedema; Editing by Vicki Allen and Gunna Dickson)