US regulator acts to reform futures trading The US derivatives regulator has drawn up plans to bring more transparency to futures trading, a move that could tilt the competitive balance between commodity exchanges. The block trading rule would set out three broad categories for futures, requiring at least 95 per cent of trading in the most active contracts to take place on central exchanges and not between two parties, people familiar with the draft proposal said. The Commodity Futures Trading Commission was set for a public vote on block trading on Tuesday, but has delayed the proposal as commissioners focus on the Volcker rule for banks" proprietary trading. The measure is important to the competition between futures exchanges including CME Group and IntercontinentalExchange, as well as start-up derivatives platforms called swap execution facilities. The outcome of the rule could influence where traders want to do business. Last week CME officials including Terry Duffy, executive chairman, met CFTC chairman Gary Gensler and his staff to discuss the block rule, records show. Most futures traders execute transactions on computers or exchange floors. When they need to trade large volumes without moving prices they execute trades in blocks, or deals struck in private. Since the terms of blocks are only reported afterwards, they are less transparent than live bids and offers flashing on screens. Policy makers want to push trading towards exchanges without killing off less liquid contracts. Exchanges late last year established lower block thresholds for many futures as energy companies sought to avoid new regulations on swap contracts. In US crude oil options the minimum block size is now 100 contracts, down from 1,000 in early 2012. "It's reasonable to have some block thresholds that are higher for the more liquid products, but we think that it's important to maintain relatively low block thresholds for the less liquid products," said Donald Wilson, head of DRW, a proprietary trading group. The draft proposal would require exchanges to ensure at least 95 per cent of futures were traded centrally, not as blocks, if their daily volume exceeded 100,000 contracts, and at least 80 per cent were traded centrally if daily volumes were between 200 and 100,000. For the least active futures, the central trading requirement would be about half, two people with knowledge of the matter said. CFTC completed a block trading rule for swap derivatives earlier this year. "To preserve the pre-trade transparency that has been a longstanding hallmark of the futures market, I believe that it is critical do so for futures as well," Mr Gensler said in a speech last month.