The Commodity Futures Trading Commission voted to approve new rules governing, among other things, when swaps dealers can delay reporting on the size and price of their block trades.
By a vote of 3-to-2, CFTC commissioners approved a measure, originally spurred by the Dodd-Frank Wall Street Reform Act, that set the levels at which block trades can be considered large enough for a longer reporting delay.
That threshold was set at 67 percent of the notional value of swaps in each category: interest- rate, credit, equity, foreign exchange, and commodity swaps. In effect, the block involved would have to fall into the upper third of overall value of swaps trading in a given category, in order to warrant delay.
About six percent of interest-rate swaps, and six percent of credit-default swaps would qualify, according to CFTC officials.
In past comments on the proposed rules, major swaps dealers such as JPMorgan Chase & Co. and Goldman Sachs Group said that they needed more time to hedge the risk of the potential wrong movement of the price of their swaps before reportinga trade. The extra time, they said, is needed in order to prepare for the market possibly moving against them.
CFTC Chairman Gary Gensler expressed support for the rule, declaring it “promotes both pre-trade and post-trade transparency.”
“The derivatives reforms in the Dodd-Frank Wall Street Reform and Consumer Protection Act, including bringing transparency to the swaps market, will lead to significant benefits for the real economy,” he said in his opening statement.
The new rules also set up a number of new internal control jobs for swap dealers, including risk management programs and chief compliance officers as well as firewalls to prevent conflicts of interest between trades and research units.
Swaps are contracts to trade one security, like a stock or bond or currency, for another. Block trades are large deals negotiated off an exchange which are posted later. Such deals have gotten increased scrutiny in the wake of the credit crisis of 2008.
Tommy Fernandez writes for Money Management Executive.