WASHINGTON The futures regulator looks set to grant the massive swaps market more relief from complying with new financial reforms until sometime in 2012 as the agency remains well behind in completing many of the largest and most contested rules.
The U.S. Commodity Futures Trading Commission first voted in July to delay some swaps rules that had been set to go into effect. The new effective dates were set as late as December 31, or until the agency had finalized the rules.
"Much like we did on July 14, this fall we also will consider further exemptive relief," said CFTC Chairman Gary Gensler, who has noted before the agency would consider additional relief if it was necessary.
"I've already directed staff to draft recommendations, with the relief appropriately tailored -- for instance, taking into account the possible completion of entity and product definition rules," he said on Thursday.
The CFTC approved the first wave of relief just days before missing a July 16 deadline for implementing rules to comply with the Dodd-Frank law that gave the agency oversight of the $600-trillion global over-the-counter derivatives market.
The lack of finalized rules risked creating a legal void for off-exchange derivatives trades used by companies and traders to offset risk on interest rate shifts or commodity price swings. There were fears the trades could be challenged or invalidated.
The regulator so far has finalized nearly a dozen rules, but most of the high-profile and controversial rules remain.
For the first time, Gensler on Thursday outlined a timetable for the rules it expects to consider in 2011 and the first quarter of 2012. The agency expects to consider clearinghouse rules, end-user exception, position limits and real-time reporting this year, and rules for capital and margin, disruptive trading practices and swap execution facilities in 2012.
CFTC TO PHASE IN SWAPS CLEARING, TRADING
The CFTC also voted 4-1 on Thursday in support of a pair of proposals that outline when the market would have to comply with new steps designed to bring more oversight to the swaps market.
"In phasing in the rules, the CFTC seeks to strike a balance between the urgent and overdue need to protect the public and an appropriate time period for companies to adjust," said Dennis Kelleher, the chief executive of Better Markets, a public interest group.
The first compliance schedule outlines how documentation and margining requirements would be phased in. Under the proposed schedule, a swap dealer and major swap participant would be required to comply with documentation and margining requirements within 90, 180, or 270 days depending on the identity of its counter party.
The second plan includes a timeline for mandatory clearing and trading requirements. It follows a similar schedule depending on the market participant. The trade component would be phased in at the same time as clearing, or 30 days after the swap is made available for trading, whichever is later.
Scott O'Malia and Jill Sommers, the two Republican commissioners at the CFTC, have said the agency needs to outline the timing of when the rules will be finalized and then implemented. They said these CFTC proposals did not go far enough because they focus only on a few of the issues the CFTC is working on.
"I think this is a missed opportunity for us," Sommers told Reuters. "This is not a comprehensive plan to let people know how the sequencing or implementation of all these rules will work," she said.
O'Malia, the lone vote against the two proposals, said he feared the proposals raised more questions than answers for market participants. He highlighted six areas where the CFTC needs to provide more guidance for market participants, including explaining why the CFTC picked the 90, 180 and 270 days and under what circumstances specified phasing for clearing and trading mandates may not apply.
"These proposals fail to facilitate a transition to the new regulatory regime in the orderly manner that the market -- as well as the Commission -- desires," he said.
The two measures are open to a 45-day comment period. In both cases, the CFTC must finalize other rules before the compliance schedules begins.