The Depository Trust & Clearing Corp. is trying to fight city hall, or in this case the regulatory authority that determines rules for swaps repositories.
DTCC is suing the U.S. Commodity Futures Trading Commission. The utility for the clearing industry believes the regulator is giving advantages to two of its competitors in the swaps repository business. The advantages, DTCC officials contend, are “anticompetitive.”
The lawsuit, filed in federal court, challenges the regulator’s approval of the Chicago Mercantile Exchange’s Rule 1001 and the IntercontinentalExchange’s Rule 211. DTCC’s argument is that the rules will allow “these clearinghouses to require reporting of cleared swap data to their captive swap data repository.”
DTCC officials said Rule 1001 approval will force CME clients to use more CME services, relying on CME’s compliance. That will tie clients to the clearinghouse, said DTCC officials, reducing competition. The rule, DTCC wrote in a letter, will “create additional risk to the system.”
A CME spokeswoman emphasized there is no tying arrangement and said the exchange is merely following CFTC rules that require a swap depository repository (SDR).
“DTCC is spinning this. No one is forcing anyone to use our services,” said Anita Liskey, managing director of corporate marketing and communications for CME Group. She added that the rule complies with CFTC rules.
Those rules, Liskey said, require a derivatives clearing organization to report a cleared swap to an SDR. But, she added, CME clients can and will be able to use other SDRs.
In interviews and filings, however, DTCC officials contend that Rule 1001 could make these trades less safe because it is a reversal of previous CFTC rulings. In a recent letter to the CFTC, they said the rule will force those trading swaps at CME to also use its “captive” SDR, as well as CME’s other services. They added that by approving Rule 1001, the CFTC is ignoring “core statutory principles” in the Commodity Exchange Act. These principles, wrote DTCC general counsel Larry Thompson, require each derivatives clearing organization to be objective, and to permit fair and open access.
“The principle of fair and open access is violated if a [derivatives clearing organization] member or participant is unable to use a clearing platform without ceding to the clearer the right to dictate how the member or participant carries on unrelated business and compliance activities,” Thompson wrote in a letter to the CFTC. “But that,” he warned, “is exactly what CME’s proposed rule 1001 would accomplish.”
Still, a CME attorney argues DTCC is misreading rule 1001.
“CME’s Rule does not provide for or otherwise address ancillary services whereby an SDR may use the swap data reported to it; the rule strictly focuses on how CME Clearing will discharge its reporting obligation under the CFTC’s Part 45 rules, which call for CME Clearing to report to an SDR the same data it already maintains and provides to the CFTC on request,” said Tim Elliott, executive director and associate general counsel for CME.
In a letter sent to the CFTC, Elliott argued that “Copying an existing file and sending it to another registered entity within CME-in this case, CME’s SDR per CME Rule 1001-does not trigger the kind of dire consequences that DTCC seems to fear.” IntercontinentalExchange officials declined comment.
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