US SEC to propose cross-border rules for security-based swaps

WASHINGTON, April 26 Fri Apr 26, 2013 5:19pm EDT

WASHINGTON, April 26 (Reuters) - U.S. securities regulators plan to propose a long-awaited plan next week spelling out how new rules governing over-the-counter derivatives will apply to cross-border transactions.

The Securities and Exchange Commission announced it will vote on Wednesday on its proposal, which runs roughly 1,000 pages. The SEC will also extend the comment period for all of its other pending derivatives proposals so the industry can see how they all fit together with the cross-border plan.

Regulators in Europe and the United States disagree on how to craft a global regime that will not create duplicative rules.

Wall Street will be eager to do a side-by-side comparison of the SEC's proposal with the cross-border draft issued earlier by its sister regulator, the Commodity Futures Trading Commission.

The 2010 Dodd-Frank Wall Street reform law gave the SEC and CFTC broad new powers to police the $640 trillion over-the-counter derivatives market.

The SEC oversees swaps tied to securities, such as equity swaps and certain credit derivatives. The CFTC oversees everything else, including interest-rate and commodity swaps.

The Dodd-Frank law requires both regulators to impose capital and margin charges for riskier trades, and to force many swaps to be traded on regulated platforms and centrally cleared to reduce default risk.

The CFTC, which regulates the lion's share of the market, created a furor last year with a proposal to subject foreign banks to the same rules as U.S. banks. Foreign regulators have called on the United States to let them apply their own rules when the trades are on their turf.

CFTC Chairman Gary Gensler has said he would be open to "substituted compliance," but only to a certain extent.

Recently, SEC Commissioner Elisse Walter, who briefly served as chairman before Mary Jo White was sworn in earlier this month, called for a compromise where foreign rules would apply in some cases and U.S. rules in others.

"In my view, that happy medium has its foundation in an approach that recognizes comparable foreign regulation to the maximum extent possible, consistent with domestic policy goals," Walter said at the time.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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