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March 11, 2014

DTCC reporting suit proceeds – should CFTC concede? | Reuters article

A judged trimmed DTCC's lawsuit against CFTC's determination on CME rule 1001 but allowed the core of the action to proceed, according to a Reuters article.   Paradoxically the CFTC may be glad in the long run to concede the suit: if that is it serious about meaningful systemic risk information becoming available to it in any kind of reasonable time frame.

A judged trimmed DTCCs lawsuit against CFTC's determination on CME rule 1001 but allowed the core of the action to proceed, according to a Reuters article.   Paradoxically the CFTC may be glad in the long run to concede the suit: if that is it serious about meaningful systemic risk information becoming available to it in any kind of reasonable time frame.

Here's the Reuters article.  Here's my prior post on US reporting limited progress on systemic risk.

What if CFTC lost the suit?

If DTCC were to win the case and secure the reversal of CFTC's determination on CME rule 1001 which allows it to assert a right to be the primary SDR for trades it clears, this would mean that trading participants (not CCPs) would be able to choose the SDR at which their data was stored.  All trading participants would then likely choose one SDR for all their data per asset class and be able to implement efficent reconciliations vs a single source per asset class.  In turn this would make it feasible for CFTC to ask SDRs to pre-aggregate by counterparty a lot of the data – potentially saving the CFTC a lot of elapsed time and IT dollars (which arguably it doesn't have anyway). 

Competition considerations

The suit is being presented on grounds that the rule 1001 determination is anti-competitive – though perhaps the CCPs might argue that a reversal is against their competitive interests.  Competition considerations apart, it may turn out to be in CFTC's own regulatory self-interest to concede the lawsuit given the short cuts to systemic risk information it enables.

Is CFTC serious about systemic risk?

So we seem to be left with the question of whether the CFTC is serious about getting useful aggregate systemic risk information for US reported activity in a reasonable timeframe and at reasonable cost. If so it should concede the suit.  If not perhaps the systemic risk reporting project should be turned over to prudential bank regulators (e.g. the Fed) who seem more culturally and experientially suited to systemic risk concerns.


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