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Derivatives industry criticizes CFTC’s 85 percent rule for swaps

Gary Gensler

The U.S. derivatives industry is pushing back against a rule that it claims would force trade exchanges to delist hundreds of futures contracts, ultimately damaging market liquidity and smothering innovation.

The rule, a provision of the 2010 Dodd-Frank Act, aims to protect price discovery in the $708 trillion swaps market by requiring a minimum of 85 percent of a contract’s trading to occur on an exchange’s centralized market, Reuters reports.

Market participants maintain that the rule would have the opposite effect, ultimately damaging the ability of firms to compete and driving business off of exchanges.

“Our greatest anxiety around this proposed rule is that it would have a very chilling effect on the ability of new exchanges to compete and upon new contracts to succeed,” CEO Thomas Callahan of NYSE Liffe U.S. said, according to Reuters.

The CFTC proposed the rule in December 2010 as part of a broader derivatives oversight and risk-limiting measure, which was finalized in May, though regulators decided to postpone a vote on the 85 percent rule. CFTC Chairman Gary Gensler said that a vote on the rule would be delayed until the commission could finalize swap-execution rules this summer, Reuters reports.

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