In what is looming as a battle of two institutional powerhouses, the DTCC has objected to the CME’s proposal that all participants of their clearing services use the CME’s own swap data repository. This goes contrary to the CFTC’s ruling that clearinghouses must provide fair and equal access to other service providers and that repositories cannot bundle their services together. Given the clout that both the CME and the DTCC have in US financial markets, this looks like a showdown in the making.
Here’s the DTCC’s announcement issued Nov 29 2012:
“The U.S. Commodity Futures Trading Commission’s (“CFTC”) rules and interpretations of the Dodd Frank Act have made it clear for nearly a year that clearinghouses must provide open access and that data repositories cannot bundle other services as the CME Group Inc. (“CME”) proposes. In fact, the CME is proposing that as a condition for using their clearing services, market participants must agree to report their trade data to the clearinghouse’s own captive swap data repository (SDR). The industry has spent hundreds of millions of dollars to be fully prepared to meet reporting obligations that will become effective in one month. The Commission’s action late yesterday was an unexplained and an abrupt reversal of course. 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. This will ultimately disrupt the progress the industry and regulators have achieved so far to implement the financial reforms mandated by the Dodd-Frank Act. We are surprised and disappointed that the Commission would take such a step at this late date and ask that it reverse its decision and reinstate the FAQs which have provided the industry with appropriate decision-making capabilities in regards to their own swaps data.”
The DTCC has really come out swinging on this one, including charging that the CME proposal creates new risks. While we can’t say that we agree with all of DTCC’s points, the risk angle is one example of how DTCC sharpened its knives and come out with possibly every argument in the book for why the CME’s proposal should be rejected by the CFTC.
Here is the DTCC’s full rebuttal to the CME’s proposal.
Also for context, here is the timeline on the CFTC’s rulemaking process.