By Karen Brettell
(Reuters) – The U.S. derivatives regulator on Thursday said it was backing away from a controversial proposal to delay the trade reporting of some swaps, after a number of market participants said that it would make it more costly and difficult to trade the contracts.
The Commodity Futures Trading Commission (CFTC) in April proposed that the reporting of block trades be delayed for 48 hours, compared with 15 minutes now. These trades comprise around one third of the $300 trillion U.S. swaps market.
But on Thursday Chairman Heath Tarbert said that the CFTC has dropped the proposal, adding that “public transparency is a bedrock of vibrant markets.”
Large banks have argued that a longer delay is needed for block trades so that information isn’t revealed to the market before they can hedge or offset the position.
But academics and asset managers including Citadel, Vanguard and T. Rowe Price said there was a lack of data supporting the notion that a reporting delay would improve market conditions.
Many also expressed concern it would make it harder to determine a fair price for swaps and make it more expensive for all but the largest market participants to trade.
Reduced transparency in swaps would also mean that other fixed income products that use swap prices as a reference would be more difficult to value.
T. Rowe Price said in its response to the proposed rule that swaps are used to help price many market indicators and indices including swap curves. “The long delays proposed by the Commission would make these indices much less reliable and accurate,” it said.
Interest rate swaps let parties exchange future interest payments to manage risk or bet on whether rates will rise or fall.
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