15 July 2013

Reuters: CME wants out of US SEC's plan to reduce trading glitches

CME Group Inc, the world's largest futures exchange, is asking US securities regulators to be excluded from proposed rules that would require exchanges and clearing agencies to conduct testing and be better prepared to handle trading glitches or natural disasters.

CME said its clearinghouse for credit derivatives is already overseen by two other regulators and that CME should not be subject to the rules because it does not play a significant role in US securities markets.

The SEC's plan would require exchanges, clearing agencies and certain large "dark pool" trading venues to notify regulators about problems with or changes to technology systems. They would also need to designate individuals or firms to participate in testing their business continuity and disaster recovery plans at least once a year, among other things. In principle, the plan is not controversial. But after details emerged, it has drawn criticism from all corners of Wall Street, forcing the SEC to extend the public comment period and likely posing challenges as regulators work toward finalising the regulations. Exchanges, including NYSE Euronext, owner of the New York Stock Exchange, have complained that the proposal is too narrow and fails to cover all brokerages. But the Securities Industry and Financial Markets Association, the leading trade group for the brokerage industry, and another group representing proprietary trading shops, both have warned against expanding it to cover all brokerages.

The CME's letter is unique in that it represents an entity covered by the rule that is requesting an exemption. The SEC will likely need to tread carefully as it works to finalise the rule. The agency has suffered a string of defeats to its rule-making over the past few years after trade and business groups filed lawsuits alleging it had failed to conduct a proper economic analysis and had failed to weigh exemptions to rules properly.

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