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CFTC Swap-Data Policies Amended Following CME Group Lawsuit

U.S. policies for swaps data have been amended and opened for additional public comment after a lawsuit challenging the rules was filed by CME Group Inc., owner of the world’s largest futures exchange.

The U.S. Commodity Futures Trading Commission withdrew part of a document governing how trade price and volume information is routed to new databases under the Dodd-Frank Act. The agency also sought comment yesterday on CME’s proposed policy of having data for trades guaranteed by its clearinghouse sent to its own so-called swap-data repository.

“The commission’s action late yesterday was an unexplained and an abrupt reversal of course,” the New York-based Depository Trust and Clearing Corp., which operates a swap database, said in a statement today asking the CFTC to reverse its decision. “This action is inconsistent with the commission’s previous actions, and will cause market participants to question the finality of any commission rule or interpretation.”

Chicago-based CME, which is seeking an injunction against CFTC rules for reporting private trade information, was granted provisional registration for its own swap-data repository, the agency said Nov. 21.

“As market participants look for alternatives in the SDR space, our service offers them the ability to optimize their existing connections to CME Clearing for automatic SDR reporting, which delivers a lower-cost option for firms transitioning to the clearing mandate,” Kim Taylor, president of CME Clearing and the CME Repository Service, said in a statement on Nov. 21.

Rules ‘Contradicted’

After the data-repository rulemaking, the CFTC’s staff on Oct. 11 published a document addressing frequently asked questions about reporting. CME said the document contradicted the rules by saying buyers and sellers of a swap would be allowed to decide which database would get trade information.

“To the extent the FAQ requires CME to report nonpublic regulatory data on cleared swaps to SDRs chosen by the original swap counterparties, CME will suffer harm,” Mark D. Young, a Washington-based partner representing CME at Skadden, Arps, Slate, Meagher & Flom LLP, said in the lawsuit.

CME’s lawsuit was faulted by DTCC for undermining Dodd-Frank rules to boost transparency following the 2008 credit crisis.

The suit, filed in federal court on Nov. 8, “threatens to dismantle and disrupt the entire regulatory regime statutorily mandated by the Dodd-Frank Act in order to preserve CME’s exclusive access to data that it acquires through its role as a derivatives clearing organization,” DTCC General Counsel Larry E. Thompson said in a Nov. 11 letter to the CFTC.

Michael Shore, a spokesman for CME, declined to comment on the CFTC’s actions yesterday.

The case is Chicago Mercantile Exchange Inc. v. U.S. Commodity Futures Trading Commission, 12-cv-01820, U.S. District Court, District of Columbia (Washington).

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