CME Favored in U.S. Swaps-Data Plan, Competitor Suit Says

CME Group Inc.’s regulatory approval to have information about swaps routed to its own database is being challenged in federal court by a rival alleging the arrangement is anticompetitive and lessens transparency.

The Depository Trust and Clearing Corp., or DTCC, in a lawsuit filed today in federal court in Washington accuses the Commodity Futures Trading Commission of diminishing the integrity and accuracy of market data by unfairly favoring Chicago-based CME, owner of the world’s largest futures exchange, in violation of the Dodd-Frank Act.

“By approving these rules, CFTC changed its original adherence to the pro-competitive principles of Dodd-Frank and instead sanctioned anticompetitive behavior that allowed these clearing houses to require reporting of cleared swap data to their captive swap data repository,” Larry Thompson, DTCC’s general counsel, said in an e-mailed statement.

The lawsuit, which challenges three actions by the commission, adds uncertainty to swaps-data oversight more than two years after Dodd-Frank, the 2010 regulatory overhaul, gave the CFTC and Securities and Exchange Commission authority to write rules requiring swap data to be reported to the agencies and the public. The law, enacted in response to the 2008 credit crisis, set up so-called swap data repositories as record-keepers for information about buyers and sellers, volume and prices.

The lawsuit also challenges the agency’s approval of Atlanta-based Intercontinental Exchange Inc.’s similar swap-data routing plan.

Commission Vote

The agency on March 6 voted 4-0 to grant CME information-routing authority over objections by New York-based DTCC and banks including JPMorgan Chase & Co.

Representatives for CME and ICE declined to comment on the lawsuit. Steve Adamske, the CFTC’s spokesman, declined immediate comment.

Bloomberg LP, the parent of Bloomberg News, has filed an application at the CFTC to become a swap data repository.

The DTCC has said the CME plan fails to comply with more than a year of CFTC rule making and would lead to worse oversight of the market because data will be fragmented.

JPMorgan in a Jan. 11 letter to the commission said the CME proposal is an anticompetitive arrangement between clearing and data record-keeping. The proposal also will hurt the Dodd-Frank Act goal of increasing swaps-market oversight, Alessandro Cocco, a JPMorgan managing director, said in the letter.

“CME’s proposed rule would spread swap data across numerous” databases, resulting in less transparency, he wrote.

Dropped Challenge

In November, CME dropped a legal challenge it brought over the reporting rule after the agency backed away from the requirements. CME sued the commission seeking a permanent injunction against rules requiring registered derivatives-clearing organizations, such as itself, to provide nonpublic reports of cleared swap transactions to a new swap data repository established under the act.

On Nov. 28, the commission withdrew part of a document governing how trade price and volume information is routed to new databases. The agency also sought comment on CME’s proposed policy of having data for trades guaranteed by its clearinghouse sent to its own so-called swap-data repository.

The case is Depository Trust & Clearing Corp. v. U.S. Commodity Futures Trading Commission, 13-cv-00624, U.S. Distric Court, District of Columbia (Washington).

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