WASHINGTON (CN) – The Commodity Futures Trading Commission has reintroduced proposed regulations for determining the minimum size a block trade of swaps must be to delay reporting of the trade to the financial markets.
The CFTC issued a proposed set of rules in December 2011 but withdrew it earlier this year after meetings with market participants revealed flaws in the proposed procedures.
Swaps are derivatives where counterparties trade the cash flow of one financial instrument for that of another which is more immediately valuable to the other party.
While real-time reporting of swaps has been an important reform of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the delay of information on large trades is a good thing when the disclosure might cause a run on either party to the trade or the class of assets being traded.
This could limit market liquidity if the transaction is sufficiently large and the participants don’t have time to offset their positions.
The CFTC has been wrangling regulation of swaps since Dodd-Frank passed, and the proposed rule defines and allows for categorization of swaps into five asset classes: interest rates; credit, foreign exchange; equity and other commodity asset classes.
Minimum block sizes would be determined for each asset class and would be subject to change once enough data has been collected to determine if the block sizes maintain appropriate liquidity protections.
The public has until May 14 to comment on the proposed rules.