Data vendor Bloomberg is taking the US Commodity Futures Trading Commission (CFTC) to court over a proposed rule that it argues will make swaps trading more expensive.
Bloomberg filed a complaint against the CFTC in the US District Court for the District of Columbia on 16 April.
The CFTC introduced Rule 39.13(g)(2)(ii) in the Federal Register in November 2011 as a part of its implementation of Dodd-Frank Act provisions governing derivatives clearing organisation (DCO) activities.
The rule prescribes minimum liquidation times for the calculation of initial margin requirements for swaps and futures that are cleared by DCOs.
It establishes a minimum liquidation time of one day for futures, options, and commodity-based swaps, but a minimum liquidation time of five days for all others, including “financial" swaps, such as credit default and interest rate swaps.
In its complaint, Bloomberg, which intends to launch a trading platform once the CFTC’s current swap execution facility (SEF) rulemaking is completed, said that the rule’s “disparate treatment” of futures and commodity-based swaps has “improperly created an opportunity for arbitrage between financial swaps and interchangeable ‘swap futures’ contracts”.
“That arbitrage opportunity threatens the viability of ... SEFs that congress, in ... Dodd-Frank ... sought to foster in order to enhance transparency and further the public interest. It will also have the imminent effect of diverting trading away from existing over-the-counter swap platforms, in the period before the commission's SEF rulemaking is completed and SEFs become operative.”
Eugene Scalia, who is a partner in the Washington DC office of Gibson, Dunn & Crutcher LLP and represents Blooomberg, wrote a letter to CFTC chairman Gary Gensler in March.
In the letter, Scalia wrote that the CFTC performed “a cursory, bare-bones analysis of the rule that remarkably provides absolutely no financial or quantitative estimates of any kind”.
He requested that the CFTC stay the five-day minimum liquidation period for financial swaps ahead of the Phase 2 mandatory clearing date of 10 June, so that the same one-day period applies to all cleared swaps and futures.
Bloomberg is seeking findings that the CFTC violated the Administrative Procedure Act and Commodity Exchange Act, injunctive relief and costs.
The CFTC has not yet issued a public statement on the complaint.
