Exclusive: Southwest's oil swap trade waiver raises CFTC questions

Sun Dec 21, 2014 12:31pm EST
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By Douwe Miedema

WASHINGTON (Reuters) - Last month's move by the U.S. commodities regulator to let Southwest Airlines Co keep its multibillion-dollar oil trades secret for 15 days offered the world's biggest low-cost carrier a break it has been seeking for three years.

However, the decision to grant the airline an exemption from rules calling for greater derivatives transparency raised concerns about its market impact and sparked a debate among regulators, according to people familiar with the approval process.

All other swap trades except Southwest's must be reported "as soon as technologically practicable."

The Dallas-based airline has argued that its deals are so specific that immediate disclosure could cause the market to move against it, adding tens of millions of dollars to its costs.

For years, that argument was not enough to sway the Commodity Futures Trading Commission and its former chairman, Gary Gensler. One concern was that granting an exemption to just one company is unusual and could hurt others in a similar position.

    Also, the waiver could set a precedent that would encourage others to seek similar special treatment, restoring a veil over bigger parts of derivative markets.

The agency is already looking into problems the Mexican government is facing in its vast oil hedging program after news organizations, including Reuters, reported on the country's trades using publicly available swaps trading data, said one person familiar with the agency's procedures.

A CFTC spokesman said Tim Massad, Gensler's successor, had issued the waiver to Southwest after his staff had done proper analysis to confirm the company’s claims, and the relief was a lot narrower than what the company had originally requested.   Continued...

Southwest Airlines jets wait on the tarmac at Denver International Airport in Denver January 22, 2014. REUTERS/Rick Wilking