---
Sent From Bloomberg Mobile MSG
+------------------------------------------------------------------------------+
CFTC Proposes Swaps Reporting as Step Toward Limits (Update1)
2010-10-19 15:52:03.52 GMT
(Updates with vote in second paragraph, comment from
Gensler and other commissioners starting in third paragraph.)
By Alan Bjerga and Asjylyn Loder
Oct. 19 (Bloomberg) -- The top U.S. commodities regulator
today approved a rule that will require traders to report over-
the-counter swaps based on raw materials including oil and corn,
a prelude to trading limits.
Derivatives deemed "economically equivalent" to commodity
futures will be reported in a manner similar to current large-
trader reports, according to the plan approved by the Commodity
Futures Trading Commission in a 5-0 vote. The system will stay
in place until centralized databases known as swap-data
depositories are in place. Bruce Fekrat of the CFTC's market-
oversight division, said that could take two years.
"I'm supportive of this as an interim," said CFTC
Chairman Gary Gensler, who said he would like to see the move to
a centralized database take place as quickly as possible. The
transitional system may not take effect until after position
limits are established, which could be early next year, he said.
The Dodd-Frank financial overhaul, which became law in
July, gave the commission a year to establish rules governing
the $615 trillion over-the-counter derivatives market. Congress
took aim at the industry after soured trades on mortgage and
credit derivatives tipped the U.S. economy into the deepest
recession since the 1930s.
The legislation, named for its primary authors, Senate
Banking Committee Chairman Christopher Dodd, a Connecticut
Democrat, and House Financial Services Chairman Barney Frank, a
Massachusetts Democrat, mandates that most interest-rate,
credit-default and other swaps be processed by clearinghouses
after being traded on exchanges or swap-execution facilities.
Position Limits
All swaps will have to be reported to central repositories.
The commission has until July to establish rules for those
databases, at which time the interim rule proposed today may be
discontinued. The legislation also directs the commission to cap
the number of contracts a single trader can hold.
The CFTC has until January to set the limits on energy
commodities and metals, and until April to cap agricultural
trades. The interim rule will allow regulators to institute and
enforce limits before the repositories are in place.
Cost Concerns
Commissioner Scott O'Malia, a Republican, said he's
concerned that an interim system would create cost burdens to
companies while failing to set up a proper foundation for
comprehensive reporting later.
"I would prefer the commission take an aim, ready, fire
approach to position limits, rather than to shoot first and ask
questions later," said O'Malia. The CFTC estimates the interim
system may cost market participants $40 million a year.
Jill Sommers, the other Republican on the commission, said
she supports the proposal without backing position limits by the
current deadline. She said it would be a "mistake" to put such
restrictions in place without full swaps data being available.
The CFTC held hearings on energy-position limits last year
amid concerns that speculators helped drive crude-oil prices to
a record $147.27 a barrel in 2008. In January, the commission
proposed limits on energy contracts traded on regulated
exchanges, including crude, heating oil, gasoline and natural
gas. At the time, the agency lacked authority to cap trading in
the over-the-counter market.
That proposal was shelved after the Dodd-Frank legislation
expanded the commission's jurisdiction. The commission has 180
days to set aggregate limits that encompass over-the-counter
contracts.
The new rule is set to take effect after a comment period
the CFTC has not yet set. The agency is also seeking to
establish a definition of agricultural commodities to determine
which products may or may not be exempt from position limits.
That term will have to be defined before position limits
are set on farm goods because other commodities that fall
outside the definition will need limits earlier, Don Heitman of
the CFTC's market oversight division, told the commission.
For Related News and Information:
Interest-rate swap menu: IRSM <GO>
For CFTC trader reports: CFTC <GO>
World credit-default swaps pricing: WCDS <GO>
Credit-default swaps sector graphs: GCDS <GO>
Biggest credit-default swaps movers: CMOV <GO>
News on credit derivatives: NI CDRV <GO>
News on government and derivatives: TNI GOV DRV <GO>
--With assistance from Matthew Leising in New York. Editors:
Daniel Enoch, Steve Stroth.
To contact the reporters on this story:
Alan Bjerga in Washington at +1-202-662-7517 or
abjerga@bloomberg.net;
Asjylyn Loder in New York at +1-212-617-5771 or
aloder@bloomberg.net.
To contact the editor responsible for this story:
Steve Stroth in Chicago at +1-312-443-5931.
