The Obama administration's new rules for Wall Street suffered another setback this week as the financial industry leveled a lawsuit challenging a crucial piece of the regulatory overhaul.
The CME Group, the giant Chicago exchange, sued its regulator late Thursday over a new rule that aims to shed light on the murky derivatives trading industry. The regulator, the Commodity Futures Trading Commission, drafted the rule in January under the legal clampdown known as the Dodd-Frank Act.
The case is part of the financial industry's broader legal assault on Dodd-Frank. As regulators hash out the final details of some 400 rules, Wall Street has shifted the fight from backroom lobbying to the courtroom. The trading commission has already been sued twice over Dodd-Frank rules, and Wall Street plans to turn up the heat on the Obama administration next year with a bevy of other legal challenges.
Until now, the cases have come from groups that represent the nation's b iggest banks and mutual funds that were battered by Dodd-Frank. CME Group is an unlikely foe, having reaped significant new business from Dodd-Frank's decision to push once-unregulated trades onto public exchanges.
But the exchanges are grateful for the new business only up to a point. When the rules expose the CME to heightened requirements, the firm has been known to push back.
The lawsuit, which was filed on Thursday, takes aim at a rule that requires CME Group and other financial firms to report a battery of data about the trades they process. Under the rules, CME Group must turn over public and private information to outside data warehouses. The so-called swap data repositories, named after the type of derivative contract that is tied to the value of commodities and other assets, will in turn release the information to federal regulators like the trading commission, which can use the information to monitor the market.
In the lawsuit filed in United Sta tes District Court for the District of Columbia, CME complained that the trading commission overstepped its authority under the law. While Dodd-Frank requires CME to release the public data, the law does not explicitly force it to turn over the private information to the data warehouses, the suit argues.
The rules, CME said, “would impose costly, cumbersome, and duplicative requirements.â€
The lawsuit also painted the data warehouses as gratuitous middlemen, noting that CME already releases some data directly to the trading commission. The new process is “wholly redundant, and does not justify the costs incurred in doing so,†CME said in the complaint.
The lawsuit, however, did not fully detail the motives behind CME Group's lawsuit.
The exchange in June applied to become a data warehouse itself, but the trading commission held up the bid, a person briefed on the matter said. The application hit a stumbling block, the person said, over how CME Group would release the public data feed. The trading commission ordered that exchanges release a steady stream of swaps data in real-time, rather than in brief posts on their Web sites, a requirement that some exchanges have balked at. The exchanges, the person said, hope to sell the data to private clients.
The legal action on Thursday gives CME Group an important bargaining chip as the trading commission mulls the firm's application. The trading commission could choose to fight the case, or simply approve the CME Group's application.
An agency spokesman did not have an immediate comment. A CME Group spokeswoman declined to comment.
The financial industry has had a significant measure of success suing its regulators.
A federal appeals court last summer struck down the Securities and Exchange Commission's proxy access rule, a Dodd-Frank policy that would have empowered shareholders to oust company directors. The court has tossed out S.E.C. rules six times in seven years.
The trading commission is another favorite target. The CME Group case is the third Dodd-Frank lawsuit filed against the agency. A federal judge in Washington struck down the commission's so-called position limits rule, sending it back to the agency for “further proceedings.â€
