Swaps players beg regulators for clarity
WASHINGTON (Reuters) - Wall Street banks and major market players said they are equipped to comply with derivatives reforms, but accused regulators of dragging their feet on clarifying how and when they will go into effect.
Regulators have released dozens of proposals to reform the swaps markets, but bankers, exchange executives and traders have said they need a timetable for implementation.
They have argued that sloppy rules could reduce market liquidity, push more trading to unregulated markets and ultimately lead to higher prices for consumers.
At the start of a two-day roundtable held by the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission to design a schedule for when the reforms will be rolled out, the industry said timelines are essential and regulators are not doing enough to allow them to prepare.
"It's all about when we jump off the bridge together -- the sooner the better," said Christopher Edmonds, a president of Ice Trust, part of IntercontinentalExchange Inc, who added that at some point market participants will have to make a decision to allocate resources to be able to comply with the new rules.
"While we all have compliant operations today, the question is: Can we be compliant tomorrow?" he said.
Regulators have said they will use a so-called phase-in approach to the new rules, which are being crafted as part of last year's Dodd-Frank law, which gave them oversight of the roughly $600 trillion over-the-counter derivatives market.
The CFTC is considering a phase-in approach that would weigh many factors in determining when entities must comply. The agency is considering having market infrastructure -- clearinghouses, swap trading venues and data repositories -- ready as early as late this year, before rules overseeing how trades are carried out are put in place later on.
"That all at once approach has a lot of risk and a lot of cost," Gary Gensler, CFTC's chairman, told reporters.
Robert Cook, the SEC's trading and markets division director, said his agency does not "have a fixed timeframe in mind." He said he hopes the roundtable will help develop a "reasonable timeframe" that implements the rules in the "quickest but most practical, cost-effective way."
The roundtable comes as the CFTC and SEC find themselves nearing a mid-July timetable to implement new financial reform legislation -- a deadline they have acknowledged they will miss.
The packed hearing room included dozens of industry representatives, including executives from Morgan Stanley, CME Group Inc, and Bank of America Corp's Merrill Lynch. Commissioners from both agencies, including Gensler and SEC Chairman Mary Schapiro, attended the meeting, mostly watching from the sidelines.
Daniel Maguire of LCH.Clearnet said these rules are "game-changing" and said a phase-in approach is best. "We have a patchwork quilt that we need to get through," he said.
Market players voiced concern about what the first phase should be. Lee Olesky, the chief executive officer of Tradeweb, which is majority-owned by Thomson Reuters Corp, said registration could be a first step toward implementation.
"We think market participants will gain from having that certainty as to who the SEFs are and who the central counterparties are," Olesky said about swap execution facilities, where cleared swaps will trade.
At least one CFTC official has said regulators are not doing enough to work with the industry.
"When are we going to show them this? Are we just going to continue to roll this out and they're going to have to read it in piecemeal? Why don't we give them the full picture?" Republican CFTC Commissioner Scott O'Malia asked Reuters on Friday. Previously, O'Malia had worked for Mirant Corp on corporate risk management and energy trading among wholesale power producers.
During the rule-making process, the futures agency has been hounded by the industry as well as by lawmakers and some of its own commissioners over its frenetic pace.
Republican lawmakers have proposed a bill to delay implementation of rules involving derivatives by 18 months.
There are signs that regulators are beginning to heed the call. Just last week, the CFTC said it was reopening the comment period for most of the rules it has already proposed for as much as 30 days.
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