The agency is still working on deciding how quickly market participants will have to report customised swaps.
The CFTC had already said swaps would have to be reported to trade repositories, but its five commissioners have now voted to seek public comment on making that requirement “real time”.
However, the published rule would not require specific price information for swaps with notional values greater than $250m. Instead, these will be reported simply as “greater than $250m”.
For trades executed on an exchange or swap execution facility, and those that are not required to be cleared, price and other information would be reported by the trading facility or repository “as soon as technologically practicable”.
The proposed rule was approved by a vote of the commissioners, with the timing requirements adopted by three votes to two.
Scott O’Malia and Jill Sommers both voted against it. O’Malia said he had grave concerns about the requirement’s “‘shoot first, ask questions later’ approach”.
He concluded: “I am disturbed by a footnote in the rulemaking preamble that admits that there is a lack of public information regarding how market liquidity might be impacted by the proposed real time reporting rule.”
However, the three Democrat-nominated commissioners voted in favour of the rules. Bart Chilton rejected any concerns, saying: “I am not interested in finding ways, nor do we have the authority, to delay, defer, modify, or in any way alter the path set by Congress.”
While the speed of required reporting had been expected to be tight, an executive at one futures commission merchant in New York said he believed the vast majority of the market would be “bitterly disappointed” by the 15 minute limit for block transactions.
The executive highlighted a recent letter to the CFTC from the International Swaps and Derivatives Association, arguing that if the deadline was too tight, block swap transactions would become unviable.
Isda said block trades tended to be large orders, which could take longer than other trades to transact. As a result, the association said, letting the market become aware of transactions before they were finished could allow firms to “ambush” the transacting firm.
With such controversy surrounding block trades, the definition of what constitutes a block transaction will be significant.
The CFTC said a block trade would be any transaction that passed both the following tests: it must be larger than 95% of other transactions in the previous calendar year, and at least five times the largest of the mean, median and mode of transaction sizes for the same category of swaps in the previous calendar year.
A third test may be added, subject to feedback – that no more than one tenth of transactions in a specific category would qualify as block trades.
Meanwhile, the SEC is designing rules for security-based swaps. It said firms trading the instruments would have to register with a trade repository and report transactions in real time.
However, the SEC has yet to finalise its policy on block transactions. The Commission said it would welcome comments on what should constitute a block trade, and would announce reporting requirements later.