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CFTC to delay some swaps rules

January 4, 2013
In The News
The US Commodity Futures Trading Commission is to announce Friday a temporary reprieve from stringent new derivatives rules, people familiar with the matter said.
Until July, swaps dealers engaging in cross-border derivatives activities will be spared from enforcement of new rules so long as they are making a "good faith" effort to comply. The delay follows numerous others granted in recent weeks.
This transition period will allow dealers based overseas to get their compliance systems in order. It also grants foreign regulators more time to develop their own derivatives regulations.
After global leaders pledged in 2009 to increase regulation of so-called over-the-counter derivatives and improve transparency into what has been an opaque market, the CFTC has been among the most aggressive regulators in the world at turning those promises into concrete rules.
That approach has angered some foreign regulators, who are moving more slowly. Traders and swaps dealers argue it has also created uncertainty in the marketplace. Many fear that overseas swaps activity would fall under US rules, many of which begin at the start of 2013.
Bankers have been eyeing the new regime with nervousness because of the number of unresolved questions about cross-border swaps and the rules governing international institutions.
Larry Tabb, founder of research group Tabb Group, said the CFTC has been more willing to accept these arguments in recent weeks.
"Initially, the CFTC was very adamant in saying that if anyone wanted to do a swap with any corporation with any presence in the US, it would fall under the CFTC's jurisdiction," Mr Tabb said. "Now it has relented. Now different jurisdictions will enforce the rules within their jurisdictions for the entities within their jurisdictions."
The CFTC is keen on allowing for so-called "substituted compliance", which would allow exempt foreign activity from falling under US rules so long as the CFTC deems the foreign rules to be sufficient. The US Treasury has applauded this approach.
The derivatives regulator, led by Gary Gensler, is hoping that the transition period will allow foreign regulators to speed up the development of their new swaps rules so the CFTC can allow foreign swaps activities to fall under foreign regulations.
Bart Chilton, CFTC commissioner, last week called for a six-month delay of some of the agency's rules to limit its overseas impact.
Maxine Waters, a senior Democratic lawmaker on the House financial services committee, wrote to Mr Gensler on Thursday to demand a further delay.
"Many market participants are concerned about repeating the disruptions that occurred before the previous October 12, 2012, compliance deadline," she wrote. "Because many stakeholders believe that harmonised global swaps market reform can occur in the near-term, I request that you provide for phased-in compliance."

Despite the six-month transition period, dealers that engage in swaps transactions with US entities will still be required to register with the agency come December 31.
Foreign dealers that enter into swaps contracts with foreign entities will be largely spared, a small victory for foreign financial groups worried about the CFTC regime.
Some foreign dealers have said they are turning away US customers, for fear of being ensnared by the CFTC's rules. This has caused worry among some agency officials.