CFTC, SEC moving too fast on new rules- trade groups

Wed Dec 8, 2010 4:04pm EST

* US regulators moving too quickly, risk disrupting market

* CFTC, SEC should give industry more time to comply

By Christopher Doering

WASHINGTON, Dec 8 (Reuters) - U.S. regulators are implementing new rules to increase oversight of financial markets at such a rapid pace that it places an unfair burden on market participants and could reduce liquidity and increase risk, financial trade associations said in a letter.

Eleven groups representing banks, swaps dealers, mutual funds and others told the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission they are concerned market participants are being asked to do too much in a short amount of time.

The members, which included the American Bankers Association, Futures Industry Association, and the Investment Company Institute, said the quick pace risks placing a burden on market participants and dealers who will be unable to comply requirements, including those for clearing and execution.

"To implement a complex new regulatory structure without adequate time to adapt, prepare, and test systems also could lead to an ineffective or poorly designed reporting, clearing, and exchange infrastructure, which also would impair liquidity, and lead to higher costs, increased risk, and other adverse consequences," the members said in a four-page letter.

U.S. regulators are scrambling to propose dozens of new rules in order to comply with the recently enacted Dodd-Frank bill that increased oversight of the $600 trillion over-the-counter derivatives market. Most of the rules must be in place by mid-July of next year.

The letter cited an example where the agencies are moving too fast. For example, on Nov. 10 the CFTC proposed rules that would affect swap dealers and major swap participants. It wasn't until early December that the CFTC and SEC defined "swap dealer" and "major swap participant."

"Without guidance as to the scope of these definitions, some firms -- in particular, smaller firms -- were (and are) uncertain whether they should comment on the rules that apply to swap dealers and MSPs, because they did not know whether these rules would apply to them," the groups said in a letter.

The trade groups urged regulators to consider in some cases giving the industry more time to comply with the new laws.

"We urge regulators to take into account the practical realities facing market participants and to phase-in the application of new regulatory requirements over a reasonable period of time," they said.

(Editing by Lisa Shumaker)

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