Swift trade reports may hurt banks but needed: CFTC

By Ann Saphir and Jonathan Spicer

CHICAGO (BestGrowthStock) – Swaps trades must be reported as soon as possible in order to improve what has traditionally been an opaque derivatives market, a move that could hurt Wall Street but that would ultimately benefit the wider public, the head of the U.S. futures regulator said.

Commodity Futures Trading Commission Chairman Gary Gensler said on Wednesday there would be “some delay” allowed for large block trades, adding that the generally swift reporting of swaps prices could hurt Wall Street revenues.

The CFTC’s rules for reporting block trades are a key issue for swap dealers, who have argued they need enough time to lay off their own risk before the trades are made public.

“I don’t know where the proposed rule will come out, but I might note that in the futures market, the delay is currently five minutes,” Gensler said at the Futures Industry Association conference.

“That’s one reference point.”

The CFTC is in the midst of writing detailed rules for its oversight of the $615 trillion over-the-counter derivatives market after the Dodd-Frank financial reform law mandated that most swaps trade in more open venues and be cleared through clearinghouses. The law also requires all swaps to be reported.

The faster-than-usual reporting “does shift some of the information advantage from Wall Street to end users” like pension funds and municipalities and others that use swaps, Gensler told reporters.

But economic research shows that transparency adds to market efficiencies and brings down costs for all users, he said. “It will change a little bit the revenues of Wall Street, but that will mean the end-users get the benefit.”

The swaps market was blamed for exacerbating the 2007-2009 financial crisis.

Broker dealers such as JPMorgan Chase & Co and Goldman Sachs Group Inc are keenly interested in how exactly the CFTC will reconstruct the market, and in which “standardized” swaps will be forced through trading venues. They want to limit the damage to what is a very lucrative business of selling and trading specialized swaps.

“One of the other consequences of Dodd-Frank I assume is going to be that many people in the market are going to be doing much more tailored deals — unlike this suit I bought off the rack,” Jeffrey Sprecher, the chief executive officer of clearinghouse operator IntercontinentalExchange Inc, told the conference.

“Dealers and others will be seeking to sell much more tailored solutions because they’ll be able to net the profit.”


Gensler, taking the stage a day after Republicans won a majority of seats in the U.S. House of Representatives, said he still expects the appropriate funding for swaps reforms, and to move forward on set timelines.

“We will move forward, we will move forward as we were moving forward … with Democrats and Republicans to bring greater transparency,” Gensler told the conference. Earlier, the chairman repeated his worries that CFTC staff needs to bulk up in order to do what Congress asked of it.

A day after discussing reforms with Michel Barnier, the European Union financial services chief, Gensler also warned U.S.-based clearinghouses that they will need to meet “the most rigorous international standards.” [ID:nN02236195]

“This is particularly important as the European Commission has recommended that only clearinghouses that meet risk management and oversight standards equivalent to European standards will be allowed to be used in Europe,” Gensler said.

Nicolas Breteau, chief executive of Newedge, one of the world’s largest futures brokerages, told Reuters he was so far impressed by the transatlantic coordination. “If the two regulators from Europe and the U.S. have a common goal, I think they’ll be in a much better position to discuss this with those in Asia and Pacific,” he said.

Gensler also said the CFTC is reviewing its existing rules for futures commission merchants, commodity pool operators, commodity trading advisors and introducing brokers to see whether the regulations need adjustment.

(Additional writing and reporting by Roberta Rampton in Washington; Editing by Walter Bagley and Gerald E. McCormick)

Swift trade reports may hurt banks but needed: CFTC