Bloomberg today qualified its earlier announcement that it would set up a futures exchange if the Commodity Futures Trading Commission (CFTC) failed to amend an "arbitrary and capricious" rule it says penalises OTC swaps at the expense of futures trades.
The rule imposes a five-day minimum liquidation time for OTC swaps and a one-day minimum liquidation time for futures. It comes ahead of new rules on swap execution facilities (SEF) expected within months.
A new exchange is one of a number of options it was considering if the regulator refuses to back down. "[We are] considering creating a futures exchange if we perceive a market opportunity, but at this time we have not formalised any plans," a spokesman said today.
In the meantime, he said Bloomberg would work with exchanges to offer trading of listed swap products given significant liquidity.
Lawyers acting for Bloomberg told the CFTC last month it would "proceed to court if necessary to obtain appropriate relief before suffering irreversible harm".
Global head of fixed-income trading George Harrington has acknowledged as "inevitable" some futurisation if the Dodd-Frank requirement for central clearing of OTC derivatives results in a viable swap future product. Bloomberg's objection, he told the CFTC, was specifically to "forced futurisation".
Meanwhile, some on the buy-side played down liquidation time as a driver in the futurising trend. Michael O'Brien, director of global trading at Eaton Vance, said he planned to move much of the US investment manager's swaps exposure into futures. He declined to quantify the shift, but indicated the investor would retain some swaps positions.
"We're not particularly concerned about the [five-day minimum liquidation time] - there are other reasons to switch to futures," he said.
"We don't see the move to futures as a replacement for swaps," Sunil Cutinho, operations managing director at the CME Group, told the Futures Industry Association conference this week. CME in December launched a future contract modelled on an OTC swap.
By Shayla Walmsley