Reuters: Regulatory News: CME energy swap traders swing decisively to futures-data

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CME energy swap traders swing decisively to futures-data Oct 23rd 2012, 19:51 NEW YORK | Tue Oct 23, 2012 3:51pm EDT NEW YORK Oct 23 (Reuters) - Energy trading on the CME Group's ClearPort platform shifted overwhelming in favor of block-traded futures contracts rather than swaps last week, exchange data show, confirming a widely expected switch spurred by new regulations. So-called "block" futures trades -- privately negotiated over-the-counter deals that are then posted through the CME's clearing house -- jumped to more than 70 percent of total volume by last Friday, and stood at over 60 percent of volume on Monday, according to Reuters calculations based on CME data. The remainder of traded as swaps that were converted into futures, which had made up more than 90 percent of all ClearPort activity prior to Oct. 15 -- when new Commodity Futures Trading Commission rules came into force that will step up regulation of the biggest swap traders. "While some customers have chosen to continue executing as swaps and clearing as futures through CME ClearPort, many customers have responded to upcoming regulatory changes and are choosing to execute as futures for the lifecycle of the trade," CME spokesman Damon Leavell said. Overall energy trading volume on the ClearPort platform, which competes with Intercontinental Exchange in the over $1 billion business of clearing over-the-counter commodity and financial trades, slipped last week, and some traders had said lingering regulatory concerns had dampened activity. A relatively low 237,000 contracts traded on Monday, with block deals making up just 35 percent of the total, while only 257,000 lots by Friday. But by this Monday activity had recovered to just below 400,000 contracts, in line with the average this year. The figures exclude the much larger volume of traditional oil and gas futures traded on the New York Mercantile Exchange (NYMEX). A CME spokesman was not immediately able to comment on the figures. The switch to futures is being fueled by new rules that require any company trading more than $8 billion in swap contracts a year to register with the CFTC as a "swap dealer", a designation that increases capital and collateral requirements. Big energy swap traders like BP and Cargill Inc have argued that the new rules were meant for banks, not merchants, and were widely expected to shift in favor of block-traded futures rather than swaps -- a difference that is now largely semantic. A block futures trades is in most respects identical to a swap deal in the same underlying contract. ICE automatically converted all of its cleared energy swaps into futures contracts as of Oct. 15, allowing traders to carry on business pretty much as usual. A comparable breakdown of EFS trades versus blocks on ICE was not immediately available. The CME's transition was more tricky as its pre-existing contracts were already designated as "futures", but most were initially traded as swaps -- then cleared as futures. These would likely have counted against the "swap dealer" limit. But at the last minute the CFTC gave the CME and traders until the end of the year to make the switch to futures. Link this Share this Digg this Email Reprints

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