Federal judge dismisses Bloomberg's challenge to new federal regulations on swaps trading

WASHINGTON – A federal judge has dismissed a lawsuit by Bloomberg LP that challenged the Commodity Futures Trading Commission’s new rules on derivatives trades.

U.S. District Court Judge Beryl Howell in Washington ruled Friday that Bloomberg had failed to show it would suffer immediate and lasting harm from the new rules.

The rules stem from the 2010 Dodd-Frank law that overhauled financial regulation. The rules would require that certain complex investments called swaps be handled through exchanges and new entities called swap execution facilities, or SEFs. Bloomberg runs a service that helps firms trade swaps and wants to create a SEF.

Swaps are a kind of derivative, which is an investment whose value is based on some other asset. Swaps were largely unregulated before the 2008 financial crisis.

In suing the CFTC in April, Bloomberg argued that the rules would put it at a disadvantage. That’s because the rules would require that higher collateral be posted on SEF-traded derivatives than on those traded through larger exchanges. Bloomberg said the rules would cause customers to favour exchanges over SEFs.

Bloomberg asserted that the CFTC failed to do a cost-benefit analysis before issuing the rules and instead conducted only a minimal analysis of the economic consequences of its action.

Bloomberg’s head of government affairs, Greg Babyak, contended in a statement Saturday that the CFTC rules “will encourage the evasion of Dodd-Frank and a reduction of both investor protections and the transparency promised by” SEFs. Babyak said Bloomberg “will continue to press forward with our legal challenge.”

The judge wrote that Bloomberg had failed to demonstrate that it would lose money under the new rules. She said that the company’s claim of being harmed was “based entirely on a series of worst-case scenario assumptions that are anything but certain.”