U.S. Drops Bid for 48-Hour Delay in Big Swap Trade Reporting

U.S. regulators are backing away from a controversial plan to let banks and fund managers keep secret for two full days their biggest trades in the $559 trillion global swaps market after some financial firms complained it would hurt transparency.

The 48-hour delay -- proposed by the Commodity Futures Trading Commission in February as part of a sweeping revamp of disclosure regulations -- will likely be stripped out amid opposition from major market players, said three people familiar with the matter. The broader rules overhaul, which CFTC commissioners are likely to approve next week, would leave in place a 15-minute lag for when many so-called block trades have to be publicly reported.

Ken Griffin’s Citadel and T. Rowe Price Group Inc. were among companies that criticized the 48-hour delay, arguing it would hamper price discovery. Wall Street banks, which act as swap dealers, and fund managers such as Pacific Investment Management Co. have historically been on the other side of the debate, contending that rapid disclosure can hurt firms that are trying to buy or sell large positions because it causes markets to move against them.

A CFTC spokeswoman declined to comment.

The policy clash is part of a broader fight that has emerged among financial industry titans in recent years over whether firms should get to keep their trades secret for longer. Companies on both sides have been aggressively lobbying regulators and making their views known in public comment letters.

In 2019, the Financial Industry Regulatory Authority faced a backlash after the brokerage watchdog announced it planned to examine whether a 48-hour delay for revealing block trades of corporate bonds would boost market liquidity.

Pimco, BlackRock Inc. and other firms had advocated for the study, arguing that quick disclosure deterred banks’ brokerage units from facilitating trades. Securities dealers were hesitant to commit their capital to transactions, the investment firms said, because the rapid market transparency prevents brokers from making an adequate return when they seek to sell bonds.

Finra ultimately tabled the review after it was blasted by firms including Citadel and AQR Capital Management, which operate hedge funds that use computer algorithms to track market trends and profit from price moves.

Despite scrapping the 48-hour delay, the CFTC is on track to approve many key provisions in its February plan to revamp swaps disclosure rules, according to two of the people who asked not to be named before a vote by the agency’s commissioners.

The CFTC has been seeking to update swaps reporting rules for years. The agency has long complained that its visibility into the market is obscured by a hodgepodge of different formats and standards used by private firms that warehouse trading data.

The requirements that the regulator proposed in February would adjust criteria for block trades in a way that would make it harder for transactions to qualify for special treatment. The plan would keep market participants’ identities secret, but require businesses that collect trading data to do so in a more uniform way. It would also give firms additional time to confidentially share more detailed data with the CFTC.

The agency announced Thursday that it plans to hold a vote on Sept. 17 to finalize swaps data reporting rules. It didn’t provide details on the changes.

Bloomberg LP, the parent of Bloomberg News, sells data and legal information that are used by swaps traders.

©2020 Bloomberg L.P.

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