CLEARING:
CME, DTCC Swap Charges on Swaps Record-Keeping
CME will operate both a clearing house and a data repository. Is that fair?
Traders Magazine Online News, January 3, 2013
You may have thought that setting up electronic venues for the trading of standardized forms of credit-default and interest-rate swaps was going to be tough. Or that setting up clearing services, to remove counterparty risk, was going to be difficult.
But what about simply storing the data on those transactions as they come to pass? That could be the most difficult issue.
Indeed, if you listen to a pair of potential competitors, the establishment of rival swaps data repositories could be a boon – or wreck the record-keeping behind the nascent electronic swaps trading industry.
Such is the subject of a heated debate between the CME Group, known for its Chicago Mercantile Exchange (CME), and the Depository Trust & Clearing Corp (DTCC).
The CME Group operates the world’s largest marketplace for futures, options and other derivative securities. Included in its operations are businesses that act as central clearing units for those securities. Among its ambitions: Build up its clearing services for interest-rate and credit-default swaps, in the wake of the 2010 Dodd-Frank Wall Street Reform Act.
DTCC operates the stock trading industry’s clearing and settlement utility. And in September, it got approval from the Commodity Futures Trading Commission (CFTC) to set up a repository for details of trading. The trading will take place on the electronic venues mandated by the Dodd-Frank Act for completing transactions in standardized swaps. On December 31, its repository began accepting data from swap dealers.
Herein lies the rub.
The CME in November also sought approval from the CFTC to operate a swaps data repository, which is now in operation.
DTCC contends that brokerages are ready to use its swaps data repository (SDR), but CME attempts to use this data could result in inaccurate reporting, tying arrangements and systemic problems.
Trading firms can use both the same Derivatives Clearing Organization (DCO) and Swaps Data Repository (SDR), if they so choose. CME will operate both.
DTCC officials claim CME officials are using mandatory reporting requirements as a cover for a new rule, Rule 1001, that the CME has submitted for approval to the CFTC.
That rule says:
“[f]or all swaps cleared by the Clearing House, and resulting positions, creation and continuation data shall be reported to CME's swap data repository for purposes of complying with applicable CFTC rules governing the regulatory reporting of swaps. Upon the request of a counterparty to a swap cleared at the Clearing House, the Clearing House shall provide the same creation and continuation data to a swap data repository selected by the counterparty as the Clearing House provided to CME's swap data repository under the preceding sentence[.]”
The DTCC says that rule requires CME clients to use its repository. And that tie-in will siphon away business from its own repository, DTCC officials claim.
DTCC officials argue that the CFTC, in approving Rule 1001, is ignoring “core statutory principles” in the Commodity Exchange Act.
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