On Thursday, the Chicago Mercantile Exchange (CME) sued the Commodity Futures Trading Commission (CFTC). This latest rulemaking challenge offers useful insight into the CFTC's undisciplined approach to implementing Dodd-Frank. The CME challenges the CFTC's aggressive reading of its statute, its failure to conduct adequate cost-benefit analysis, and its adoption of rules without adhering to the Administrative Procedure Act.
The CME runs a clearinghouse that stands to benefit from Dodd-Frank's new clearing mandate for OTC derivatives (swaps). It is challenging the CFTC's requirement that clearinghouses report swap transactions they clear to a swap data repository. The CME contends that the CFTC already can get access to the data by going right to the CME; an additional reporting requirement is neither statutorily mandated nor supported by cost-benefit analysis. The CME could cut out the middleman by registering as a swap data repository. The CFTC staff, however, allegedly is conditioning registration on CME's compliance with a requirement contained in a staff guidance document that appears to conflict with the CFTC's own rule. Meanwhile, the staff's temporary dispensation for the CME is set to expire next week.
Regardless of the substantive merits of the suit, it demonstrates how the CFTC's rushed and uncoordinated approach to rulemaking has added an avoidable layer of confusion to Dodd-Frank implementation.