CFTC finalizes real-time swaps-clearing rules

Gary Gensler

The Commodity Futures Trading Commission finalized swaps rules on Tuesday that require brokers to make split-second decisions on whether or not to clear a trade.

In a 4-1 vote, the CFTC adopted the regulation, which is part of an effort to lower risks in the $708 trillion swaps market. A CFTC rule summary says that the regulation requires banks and clearinghouses to decide within “milliseconds or seconds, or at most, a few minutes,” whether to accept or reject a trade, Bloomberg reports.

“This lowers risk to the markets by minimizing the time between submission and acceptance or rejection of trades for clearing,” CFTC Chairman Gary Gensler said, according to Bloomberg.

Groups like the Pennsylvania-based Vanguard Group Inc., the Chicago hedge fund Citadel LLC and the Chicago-based trading firm DRW Holdings LLC urged regulators to mandate a clearing time to prevent market disruption and risk.

The CFTC and Securities and Exchange Commission are spearheading rule-writing efforts to increase transparency in the swaps market following the 2008 financial collapse. Gensler said that the CFTC could require financial brokerages and clearinghouses to comply with the swaps regulations as early as October.

The regulations further stipulate that clearinghouses establish account limits based on risk and monitor the limits throughout the trading day and overnight. The rule will also limit brokers “from restricting a customer or counterparty access to other market participants,” Gensler said, Bloomberg reports.

After the CFTC decides that a certain swap should be cleared, larger swap dealers are allowed 90 days before they must comply. The regulations will take effect on Oct. 1.

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