Biggest Swaps Trades Poised for Reporting Delay in Win for Banks
Biggest Swaps Trades Poised for Reporting Delay in Win for Banks
(Bloomberg) -- A push to delay reporting of transactions in the $640 trillion global swaps market is gaining steam in Washington, signaling a possible win for Wall Street banks as regulators move to overhaul how they keep tabs on trading.
The U.S. Commodity Futures Trading Commission is considering giving banks and other companies a 48-hour delay before any details of their biggest swaps trades are made public, according to four people with direct knowledge of the matter. Currently, some data about most of their transactions must be revealed within minutes.
The CFTC’s plans, which may be unveiled at a meeting on Thursday, are part of a sweeping effort to improve management of trading data. The move also touches on a debate that’s raged over the regulator’s efforts to shine more light on an historically dark corner of finance.
Swaps were key to the government’s transparency push after the financial crisis, with lawmakers and regulators making the case that derivatives contracts helped fuel the 2008 meltdown. While Congress required that anonymous data about the trades be disclosed quickly, lawmakers called for an “appropriate time delay” for the largest transactions.
Industry groups then warned that requiring quick disclosure of big trades could tip off other traders and make banks less willing to help businesses hedge risks. In 2011, the CFTC settled on phasing in a 15-minute delay for most block trades. Almost a decade later, the agency isn’t the only regulator revisiting the thorny question of how long trading data should remain private.
A Financial Industry Regulatory Authority plan to examine whether delayed disclosure of large corporate bond trades would boost market liquidity stalled recently amid a torrent of criticism from Vanguard Group Inc., Citadel, AQR Capital Management and other financial titans. The firms argued that the delays would drive up costs for most investors and give the biggest bond funds unfair advantages.
While the corporate bond and swaps markets are strikingly different, the debate around big-trade transparency invokes many of the same arguments. In the CFTC’s case, the 48-hour delay would be part of a sweeping plan to streamline how data is collected and shared.
The new requirements would still keep participants secret, but they would require businesses that collect trading data to do so in a more uniform and standardized way, according to three of the people, who requested anonymity to discuss the plan before it is released. The CFTC has long complained that its vision into the swaps market is obscured by a hodgepodge of different formats and standards used by private firms that warehouse the data.
While the data required would be streamlined under the plan, the industry would also get more time to share it with the CFTC, the three people said. The data that goes to the agency is more detailed and kept private for regulatory purposes.
Tweaked Requirements
The proposal would also tweak the criteria for block trades to make it harder for transactions to qualify for the 48-hour delay, the three people said.
A CFTC spokesman declined to comment.
The CFTC proposal may cast further delayed reporting for block trades as a way to harmonize U.S. rules with global regulations. In Europe, for example, data for derivatives isn’t required to be made public typically for two days, and in many cases even longer.
“The U.S. is the only transparent swaps market as it stands,” Chris Barnes, an executive at derivatives data firm Clarus Financial Technology, said of swaps trading generally. “We think that should be the global benchmark that all regulators aim to replicate.”
Bloomberg LP, parent of Bloomberg News, sells financial and legal information and trading systems used for swaps.
Significant Win
The CFTC’s plan was in the works before Heath Tarbert took over as chairman last July. Still, finalizing the sweeping proposal would be a significant win for Tarbert, a former senior Treasury Department official who has already proposed several new rules and has made a point of emphasizing the agency’s role in promoting economic growth.
Last month, Tarbert said that cleaning up swaps data reporting “was a key agenda item” for the agency. The CFTC said last week that it was going to hold an open meeting on Feb. 20 to consider the issue. The notice didn’t discuss any of the plan’s details, which could change before the meeting.
“It’s an area that I think everyone agrees has been a complete mess,” Tarbert said about swaps data in a Bloomberg Television interview on Jan. 29. “We want to focus on that: streamlining it to the point where we get the data we need, there’s a broad overlap between what other regulators are asking for, and we have a common base of information.”
--With assistance from Kevin Cirilli.
To contact the reporters on this story: Ben Bain in Washington at bbain2@bloomberg.net;Silla Brush in London at sbrush@bloomberg.net
To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott
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