WASHINGTON The U.S. securities regulator has stepped in to try to ease bankers' and traders' concerns over new derivatives rules set to take effect next month but which have not been written yet.
Under last year's Dodd-Frank financial reform legislation, regulators have until July 16 for implementing changes in rules governing the $600 trillion over-the-counter global derivatives market.
But the Securities and Exchange Commission and theCommodity Futures Trading Commission, which regulates the futures industry, have said they will miss the deadline for putting most of the new rules into effect.
As a result, banks, traders and other market participants have been put in a bind, uncertain how they are to comply with rules that go into effect even though they have not been written, and what might happen if regulators find them in violation.
Critics have warned that unless regulators create a short-term fix and provide some clarity for industry players worried about the so-called self-executing provisions, the market might be thrown into chaos.
"From a big picture point of view it's great they are doing this," said Michael Gorham, a professor at the Illinois Institute of Technology and former director of the CFTC's division of market oversight.
"The government's got to do whatever it can to minimize uncertainty on the regulatory side so these guys have to take these actions now," he said.
The SEC on Friday proposed the first in a series of measures expected to give Wall Street some breathing room in the next month. Specifically, it proposed giving exemptions from registration requirements for security-based swaps issued by certain clearing agencies. The proposal is open for public comment until July 25.
The main trade group for the U.S. securities industry and others have feared without some type of relief, security-based swaps would be subjected to decades-old securities laws, potentially imposing numerous additional compliance requirements, such as requiring banks to file registration statements for certain credit-default swaps.
The SEC said it will be taking "a series of actions in the coming weeks" to shed light on what requirements will apply to security-based swaps on July 16 and provide guidance for when some type of temporary relief will be granted. The agency said it will take further action and extend other temporary rules to help continue the clearing of certain credit default swaps.
Law firms have been scrambling to analyze how many provisions could go into effect on July 16.
A May 17 memo from Davis, Polk & Wardwell to financial industry clients estimated there were more than 175 new Dodd-Frank derivatives measures that will take effect automatically on a range of issues affecting banks, asset managers and clearinghouses.
The CFTC has scheduled a meeting next week to discuss how it will handle derivatives market changes scheduled to automatically kick in July 16.
"As July 16 approaches it becomes increasingly important for the public and market participants to know what the law will be after this date," Republican senators Pat Roberts, Richard Lugar and Saxby Chambliss said in a letter to the five CFTC commissioners made public earlier this week.
(Reporting by Christopher Doering, additional reporting by Diane Bartz, editing by Matthew Lewis)