Bloomberg News

CFTC Approves 30-Minute Delay in Swap-Trade Price Reporting

December 22, 2011

(Updates with commissioner comments starting in fourth paragraph.)

Dec. 20 (Bloomberg) -- Prices for swaps traded on so-called swap execution facilities or exchanges will be delayed for at least 30 minutes under a rule approved by the U.S. Commodity Futures Trading Commission.

The commission voted 5-0 to approve a final rule for how prices for trades will be made public, which depends on the type of transaction and who is doing the trading. The regulation for “real-time” price disclosures will put swaps subject to a clearing requirement at an initial 30-minute delay, which would narrow to 15 minutes after the first year. The rule also provides for an initial 48-hour delay for end users of derivatives to report prices.

The rule phases in the delays, starting no sooner than July 16.

“This will for the first time give the broad public a window,” CFTC Chairman Gary Gensler said before voting at the meeting today in Washington. “The more transparent a marketplace, the more liquid it is, the more competitive it is.”

The commission also approved, by a vote of 5-0, a rule requiring swap data repositories to keep digital information about swaps immediately accessible during the life of the swap and for five years after its termination.

Earlier Proposal

The Dodd-Frank Act required the CFTC and the Securities and Exchange Commission to increase transparency in the $708 trillion global over-the-counter derivatives market, where largely unregulated trades helped fuel the 2008 credit crisis. The commission voted 3-2 on Nov. 19, 2010, to propose a 15- minute delay for reporting large trades of standardized swaps.

That proposed rule was meant to set up delays for the largest transactions, known as block trades. Because the CFTC decided to postpone defining what an “appropriate minimum block size” is, the new delays affect all publicly reportable swaps transactions.

CFTC Commissioner Bart Chilton said the postponement of the block-trade definition was spurred by industry comments. “In no uncertain terms, we were told we got it wrong, quite frankly,” he said.

Gensler said the CFTC will re-propose a rule to establish the definition, which he said would be “different for different asset classes.” A future definition could eventually eliminate delays for smaller trades, requiring they be reported “as soon as technologically practicable,” Gensler said.

Hedging Protection

Industry groups representing banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Deutsche Bank AG argued that the original proposal for a 15-minute limit -- meant as a window to give traders a chance to hedge big trades prior to them going public -- wasn’t enough time to protect them from competitors taking advantage of their need to hedge. Banks use hedging, which involves offsetting trades with opposite transactions, to shield themselves from losses.

CFTC Commissioner Scott D. O’Malia said the final rule is “far more accommodating” than the initial proposal.

The Securities and Exchange Commission is responsible for writing parallel rules for security-based swaps.

“We’ve shared everything that we have with them,” Jeffrey Steiner, special counsel in the CFTC’s Division of Market Oversight, said today. “At least at the staff level, they didn’t think there would be anything that would be inconsistent.”

Bloomberg LP, the parent company of Bloomberg News, has said it intends to register as a swap-execution facility.

Derivatives, including swaps, are financial contracts tied to interest rates, currencies or events, such as a change in weather or a company default.

--With assistance from Matthew Leising in New York. Editors: Lawrence Roberts, Maura Reynolds.

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.


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