CME Group Inc.'s lawsuit over U.S. Commodity Futures TradingCommission swap-data rules will undermine efforts to boosttransparency following the 2008 credit crisis, the Depository Trust& Clearing Corp. said.

The suit, filed in federal court on Nov. 8, “threatens todismantle and disrupt the entire regulatory regime statutorilymandated by the Dodd-Frank Act in order to preserve CME's exclusiveaccess to data that it acquires through its role as a derivativesclearing organization,” DTCC General Counsel Larry E. Thompson saidin a letter to the CFTC yesterday.

CME, the Chicago-based exchange operator that runs a swapsclearinghouse, is seeking an injunction against CFTC rules forreporting private trade information, claiming that submissions toso-called swap-data repositories would be redundant. DTCC, based inNew York, is one of the firms given CFTC approval to run datarepositories for interest rate and credit-default swaps, amongother types of trades.

Dodd-Frank, the 2010 financial regulation overhaul, directed theCFTC and Securities and Exchange Commission to write rules forswap-data repositories to give regulators a better view on pricesand volume in a $648 trillion market dominated by banks includingGoldman Sachs Group Inc., JPMorgan Chase & Co. and DeutscheBank AG.

The CFTC has granted provisional registration to DTCC DataRepository LLC and ICE Trade Vault LLC, a repository operated byAtlanta-based Intercontinental Exchange Inc. for information onenergy, interest rate, credit and other swaps.

“One of the essential parts of financial reform is promotingtransparency; transparency both to the public and to regulators,”CFTC Chairman Gary Gensler said in a Sept. 20 interview after theagency announced DTCC's registration.

Steve Adamske, the CFTC's spokesman, didn't respond to telephoneand e-mail requests for comment while U.S. government offices areclosed for observance of Veterans Day.

CME said in the lawsuit that it is awaiting a response from CFTCon its June 7 application to become a data repository. The companysaid in its suit that it must comply with the cleared swapreporting rules tomorrow.

“CME believes the cleared swap regulatory rules will imposecostly, cumbersome, and duplicative requirements” on derivativesclearinghouses, Laurie Bischel, spokeswoman for CME, said in ane-mail today.

The lawsuit and DTCC response highlight the revenue potentialfrom collecting market data, said Darrell Duffie, a professor atStanford University's Graduate School of Business. “Even if thefees are quite modest, at some point in the future it could bequite valuable to be the owner of these data,” Duffie said in atelephone interview.

Frequent Questions

After the data-repository rulemaking, the CFTC's staff on Oct.11 published a document on frequently asked questions aboutreporting. CME said the document contradicted the rules by sayingbuyers and sellers of a swap would be allowed to decide whichdatabase would get trade information.

“To the extent the FAQ requires CME to report nonpublicregulatory data on cleared swaps to SDRs chosen by the originalswap counterparties, CME will suffer harm,” Mark D. Young, aWashington-based partner at Skadden, Arps, Slate, Meagher &Flom LLP representing CME, said in the lawsuit.

The financial industry has spent a year planning for the newdata repositories and invested hundreds of millions of dollars tocomply with rules, according to DTCC.

The DTCC data repository “has significant concerns with thepotential negative consequences of a judicial challenge orcommission action to remove the necessity for a legal dispute,”Thompson said in the letter. “DTCC is currently considering itspossible responses to the suit and resulting Commission activity,including possible judicial recourse.”

Fragmented information about the market across multiple datarepositories risks undermining Dodd-Frank's goals by threateningregulators' ability to view consolidated positions and patterns ofmanipulative or abusive trading, according to DTCC.

“It is critical that swap data is reported to and maintained byone SDR throughout the life of the contract,” Thompson said.

DTCC doesn't object to CME or any other clearinghouse “keeping acopy of the cleared trade as long as they send a copy of thecleared trade to the SDR in accordance to their customer's choice,”Thompson said in an e-mail statement today. “Copies of data are notan issue, however, customer direction regarding where trades shouldbe sent for official record-keeping in the SDR is key.”

The case is Chicago Mercantile Exchange Inc. v. U.S. CommodityFutures Trading Commission, 12-cv-01820, U.S. District Court,District of Columbia (Washington).

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