‘Sleight of Hand’ Doesn’t Pan Out for Bloomberg

     WASHINGTON (CN) – Bloomberg lacks standing to challenge new Commodity Futures Trading Commission rules for swaps and futures and options, a federal judge ruled.
     The CFTC adopted the final rule in November 2011, establishing guidelines that require derivatives-clearing organizations to use a minimum liquidation time of one day for futures and options; a one-day minimum for swaps on agricultural commodities, energy commodities and metals; and a minimum liquidation time of five days for all other swaps.
     The new requirements apply to Bloomberg’s Professional Service, an over-the-counter swap platform.
     Bloomberg claimed in an April complaint that derivatives-clearing organizations should have the power to establish liquidation times for certain products – a notion it said was echoed by CFTC Commissioner Scott O’Malia, who objected to the rule.
     It complained that the varying minimums will cause it to lose millions of dollars, but U.S. District Judge Beryl Howell called the theory pure conjecture Friday.
     He pointed out that its argument hinges mostly on the idea that derivatives-clearing organizations will take advantage of the one-day liquidation time for clearing swap futures by setting lower liquidation times for those assets, traded on competitor designated contact markets, than for the swaps traded on the Bloomberg market, which are subject to a five-day liquidation time.
     “Even granting the plaintiff the benefit of all reasonable inferences, the plaintiff has still failed to present any potential injury to its business that is simultaneously ‘certain,’ ‘great,’ and ‘imminen[t],'” Howell wrote. “The plaintiff’s theorized injury falls especially short with regard to certainty and imminence. As discussed above, the presence of the plaintiff’s injury is based entirely on a series of worst-case scenario assumptions that are anything but certain to occur. Furthermore, although the plaintiff ties the imminence of its harm to the June 10, 2013 compliance date for mandatory swap clearing of Category 2 entities, this date appears to the court to be nothing more than a red herring.”
     The new CFTC rules will not regulate Bloomberg; they will regulate derivatives-clearing organizations, the judge emphasized.
     Bloomberg nevertheless failed to explain why these organizations “would suddenly change their margining practices with respect to financial swap futures and financial swaps simply because a broader universe of entities will be required to clear their swaps,” according to the ruling.
     Howell likened the argument to a “sleight of hand,” and disregarded the company’s “hyperbolic rhetoric.”
     Ultimately Bloomberg “lacks standing to challenge the commission’s regulation and has not made a showing of imminent and irreparable harm sufficient to warrant the extraordinary relief of a preliminary injunction,” he wrote.
     Bloomberg is represented by Gibson Dunn attorney Eugene Scalia, the son of U.S. Supreme Court Justice Antonin Scalia.
     The company says its financial data and information platform provides analytics and trade-execution platforms for 315,000 subscribers worldwide. In its complaint, Bloomberg said it plans to facilitate trading in the swaps market by creating its own swap execution facility as soon as CFTC rulemaking in the area concludes.
     Bloomberg also plans to appeal the ruling, its government affairs head, Gregory Babyak, said.
     “Like many of clients Bloomberg continues to believe that the CFTC’s initial margin rule for cleared financial swaps will have a negative impact on the cleared swaps market,” Babyak said in a statement.

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