CFTC delays broker conflict-of-interest rule

Mon Jun 4, 2012 7:37pm EDT

* Rule mandated by Dodd Frank to boost analyst independence

* Industry says rule will hurt business, create legal problems

* CFTC delays rule by 60 days

By Alexandra Alper

WASHINGTON, June 4 (Reuters) - The U.S. futures regulator on Friday delayed by 60 days the compliance date for a rule that seeks to boost the independence of research analysts at futures brokers, heeding a last-ditch plea for relief from the industry.

The rule, finalized by the Commodity Futures Trading Commission in February, seeks to establish a firewall between the research, trading and clearing sides of big futures brokers.

Mandated by the 2010 Dodd Frank Reform law, it was scheduled to go into effect on Monday.

Industry groups have argued the rule will disrupt brokerage research and damage customer communications. They have pleaded for more time to comply.

In a letter to the Futures Industry Association (FIA) dated Friday, the CFTC's division on swap dealer oversight granted the futures brokers "no action relief," or a promise not to enforce the rules until Aug. 3

"You have identified operational constraints that will prevent certain affected persons from becoming fully compliant" with the rules by June 4, Gary Barnett, chief of the Division wrote. "The Division will not recommend that the Commission take an enforcement action," against futures brokers for failing to comply with the new rules for two months, he said.

The letter was a response to two petitions received on May 25 and May 31 by the FIA and the National Introducing Brokers Association.

The relief will also apply to introducing brokers, which take futures orders from clients but don't actually execute the trades.

The rule restricts how researchers interact with traders and clearing personnel inside their own firms. It also requires brokers to ensure disclosure to customers of any conflicts of interest that might affect their trading and clearing decisions.

Futures brokers say the rule will create a nightmare of legal liabilities, stifle communication and disrupt markets.

The rules are part of a broader set of business conduct regulations for swap dealers and futures brokers, and was approved by a 3-2 commission vote earlier this year, with both Republicans voting against it.

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