Bloomberg sues CFTC over cleared swaps margin rule

Tue Apr 16, 2013 8:44pm EDT
 
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By Douwe Miedema

WASHINGTON (Reuters) - Data vendor Bloomberg L.P. filed a lawsuit on Tuesday against the top derivatives regulator to fight a new rule that would make the trading of swaps more expensive and hurt its business.

Bloomberg is one of a dozen or so providers that plan to launch platforms on which to trade swaps, as regulators globally crack down on the $650 trillion market to prevent a repeat of the 2008 financial crisis.

Under a rule by the Commodity Futures Trading Commission (CFTC), buyers and sellers of swaps must set aside enough money - so-called margin - to cope with the impact of a deal falling apart, assuming it takes five days to unwind the position.

But for futures, a rival type of product, the assumption is that deals can be unwound in one day, making them far cheaper to use.

"These arbitrary requirements are the result of a flawed rule-making process and a patently deficient cost-benefit analysis," said Eugene Scalia, Bloomberg's high-profile lawyer. "The rule will have a serious adverse effect on the market."

The CFTC declined to comment on the lawsuit, filed in federal court in Washington, D.C.

Underlying the lawsuit is a looming battle between exchanges and investment banks over who rules the lucrative derivatives market, a vast playground for speculators, parts of which were long unregulated.

Exchanges dominate the futures market, which have been regulated for decades and now operate at a lower cost because of the CFTC's rule.   Continued...