News: CFTC Approves CME 1001 - Will DTCC Sue?

07 March 2013 | Bill Hodgson

DTCC (Larry Thompson) may go after the CFTC or CME if he feels there is a case, with CME automatically delivering cleared OTCs into their own SDR. But, on rule 1001 they put this:

5) At the request of Party A or Party B, as applicable, under Rule 1001 CME Clearing would report a copy of relevant data that it reports to CME's SDR to another SDR chosen by Party A or Party B, for the resulting swap and related position of Party A or Party B, as applicable.

Which conveniently side-steps the lock-in. Would the other SDR also charge to receive the trade from CME? (in addition to CME charging to report the data into it's own SDR) Will CME build electronic links to other SDRs ? Full details of the rule, and CME's response to DTCC criticism in the link below for rule 1001. Rule 1001: http://www.cftc.gov/stellent/groups/public/@rulesandproducts/documents/ifdocs/rul120612cme001.pdf CFTC Approves Request from the Chicago Mercantile Exchange Inc. to Adopt New Chapter 10 (“Regulatory Reporting of Swap Data”) and New Rule 1001 (“Regulatory Reporting of Swap Data”) of CME’s Rulebook.


As seems often to be the case, what the CFTC wants to be able to see as a result of reporting and how it wants the information flow organized over the industry may not be clearly specified in the regulations. One thing that seems axiomatic is that they would want to see the OTC exposure of each US counterparty to all other counterparties and it would clearly be most convenient for CFTC if all a given US counterparty's trades were held in a single SDR. This would also enable CFTC to later ask / regulate that SDRs calculate and produce meaningful counterparty OTC portfolio risk metrics across the whole portfolio where otherwise they may have to piece the portfolio together and calculate the metrics themselves.This could be achieved by ruling for an information flow where CCPs route cleared trades to the SDR of the clearing participant's choice and having SDs send their bilateral trades (including any SEF-executed trades which fail to clear at a CCP) to the SDR. Whilst this would mean in some cases that two sides of the originally executed trade sometimes get routed to two different SDRs, in this approach, there would be no need at all for example for SEFs to report trades and non-SDs would only need to worry about non-cleared trades done with non-SDs. I suppose that even if CME maintains the latest ruling, the same result could be achieved by the SDs routing their own cleared exposures to their chosen SDR (i.e. if it is not CME) but this seems like a more costly and more error-prone overall solution given the number of SDs is much greater than the number of CCPs. Does anyone have deeper insight into the CFTC's rationale here or why CME is so keen to persist on this point?