U.S. lawmakers chide CFTC over cross-border rules

WASHINGTON Thu Dec 20, 2012 3:00pm EST

WASHINGTON (Reuters) - A group of U.S. Congress members across the political divide urged the country's top derivatives regulator to decide quickly how its rules apply abroad, or risk disrupting derivatives markets.

The Commodity Futures Trading Commission (CFTC) has only a few days left to finalize its international approach, after drawing flak from foreign regulators about the blunt way it imposed its rules on banks abroad.

"We are very concerned that a lack of coordination between both foreign and domestic regulators could soon lead to a disruption of the derivatives markets," the 14 members of the House of Representatives said in a letter on Thursday.

Countries across the world are writing rules for swaps for the first time to mend systemic flaws brought to light by the 2008 financial crisis. The rules are bringing trading onto regulated platforms and making more trading data public.

The CFTC has entered a bumpy last stretch of its part of the process, and - on top of the cross-border rules - still needs to write rules that govern swap trading platforms as well as set standards for safety buffers for uncleared swaps.

Critics have said that a batch of last-minute temporary fixes are a telling sign of the overly aggressive way in which CFTC Chairman Gary Gensler, a Democrat, is tackling the post-crisis clean up of Wall Street.

Separately, Maxine Waters - who has been elected as the top Democrat on the Republican-chaired House Financial Service Committee - also urged Gensler to come up with phased compliance and delays where needed to avoid confusion.

A spokesman for the CFTC declined comment.

Two CFTC commissioners said last Thursday they hoped to come out with a decision on the cross-border issue this week.

They were speaking at a Congressional hearing of the committee that the letter's authors are part of, and which oversees the powerful CFTC.

Foreign banks must stick to the same rules as U.S. market parties if they want to do business with U.S. firms and if they exceed a threshold of $8 billion in swaps trading a year, according to proposed CFTC rules.

In October, the agency issued a temporary reprieve from the proposed rules. The reprieve ends December 31. It gives a narrower definition of what constitutes a U.S. person, which includes firms, and thereby eases the rules for the foreign banks.

Republican Commissioner Jill Sommers said last week that she wanted a narrow definition to be included in the CFTC's final rule. The CFTC's five commissioners are now voting on the matter.

(Reporting by Douwe Miedema; editing by Andrew Hay)