Regulators set September deadline for derivatives deal

Wed May 15, 2013 12:17pm EDT

* Tensions rise as Sept deadline for G2O leaders looms

* Transatlantic spats focus on cross-border scope of rules

* Common ground needed to avoid costly regulatory overlaps

By Huw Jones

LONDON, May 15 (Reuters) - Financial regulators have given themselves until September to try to resolve differences over how to supervise derivatives markets in the wake of the financial crisis, a U.S. watchdog said on Wednesday.

Leaders of the Group of 20 economies (G20) pledged in 2009 to make off-exchange traded derivatives like credit default swaps more transparent. They wanted rules in place by the end of 2012, but this has proved difficult to achieve.

The delay is partly because regulators want a common approach to avoid costly overlaps that could distort markets and competition among banks.

"We have an aspirational goal of September for reaching resolution on some of these issues," Brian Bussey, associate director for derivatives policy at the U.S. Securities and Exchange Commission (SEC), told a Chatham House roundtable.

The September deadline coincides with a G20 summit in Russia to review progress on the rules.

The plan is for the $640 trillion derivatives sector, dominated by 16 big banks, to have all trades recorded and cleared by third party clearing houses that are backed by a default fund.

Regulators' focus is on derivatives because of the central role they played in the financial crisis. Lack of transparency created uncertainty over who was exposed when Lehman Brothers and insurer AIG got into trouble.

The United States and the European Union are trying to meet the G20 pledges with domestic rules, such as the U.S. Dodd Frank Act. But there are differences emerging over how far each country can regulate "cross-border."

The SEC and the main U.S. derivatives regulator, the Commodity Futures Trading Commission (CFTC), Mexico and Canada have outlined how they will treat cross-border derivatives.

"Very little is coming out of Europe," Eric Pan, SEC associate director for international affairs, said at the Chatham House event.

Until regulators publish their approaches it will be hard to tackle overlaps that risk distorting competition, Bussey said.

The EU's European Commission executive said it published an outline of its cross-border approach as far back as last August.

"Rather than Europe delaying things, we are actually a year ahead of the United States," Patrick Pearson, the commission official responsible for derivatives, told Reuters.

Finance ministers from the EU, Asia and Latin America have asked the United States for a flexible approach to derivatives and a response is still awaited, Pearson said.

The SEC is keen for the EU to accept that U.S. rules for clearing houses are "equivalent" to the bloc's rules so clearers like ICE don't face multiple standards.

But Europe has criticised the CFTC for the cross-border reach of its new derivatives rules. As a result, the SEC is trying to broker a compromise by proposing a more accommodative "middle way" welcomed by global regulators.

The SEC's middle way achieves the goal of keeping global derivatives markets open, Anne Wetherilt of the Bank of England's markets division, told a Futures and Options Association seminar on Wednesday, which Bussey and Pan also attended.

"We need to resolve how (bank) branches are treated differently. If we have our way we would rewrite Dodd Frank," Tom Springbett, a senior official at the UK Financial Conduct Authority told the seminar.

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