* CFTC's O'Malia calls for cost benefit analysis for
* Guidance would shed light on overseas reach of US swaps
* Chairman Gensler pointed to JPM losses to show need for
* Guidance may come as early as June
By Alexandra Alper
WASHINGTON, May 31 A top Republican regulator on
T hursday called on his agency to study the economic impact of
guidance it plans to issue as soon as next month that will set
the global reach of new U.S. swaps rules.
Scott O'Malia, a commissioner at the Commodity Futures
Trading Commission, said a cost-benefit analysis would allow the
agency to make an "informed decision" about how broadly to apply
"The Commission should do the right thing and conduct a
thorough analysis of the costs and benefits of its guidance,"
O'Malia, a frequent critic of agency rules, said at a conference
on the over-the-counter derivatives market in New York.
Industry groups have made the quality of cost benefit
studies a cornerstone of their efforts to push back against
rules required by the 2010 Dodd-Frank financial oversight law.
O'Malia has sharply criticized prior CFTC analyses, which
are required to accompany agency rule makings but not guidance,
saying they fail to quantify costs adequately or offer policy
His criticism has been fodder for industry lawsuits aimed at
striking down unpopular rules.
A legal challenge to the CFTC's position limits rule,
brought in December by the Securities Industry and Financial
Markets Association and the International Swaps and Derivatives
Association (ISDA), centers on the inadequacy of that rule's
cost benefit analysis and cites critical comments from O'Malia.
REACH OF SWAPS RULES
The CFTC was tasked by Dodd-Frank with reducing risk and
boosting transparency in the opaque $708 trillion global swaps
Risky derivatives trading at overseas subsidiaries of firms
like insurer American International Group severely
damaged the U.S. financial system during the 2007-2009 financial
crisis and led to multibillion-dollar taxpayer bailouts. It has
also prompted some U.S. regulators and lawmakers to push for a
swaps regime with broad overseas application.
CFTC Chairman Gary Gensler has pointed to JPMorgan Chase &
Co's mounting $2 billion loss -- from trades the bank
booked in London -- to highlight the need for a tough overseas
"Some commenters have expressed the view that if a
transaction is done offshore, it should not come under
Dodd-Frank," Gensler said at a Senate Banking Committee hearing
earlier this month.
"The law, the nature of modern finance and the experiences
leading up to the 2008 crisis, as well as the reminder of the
last two weeks, strongly suggest this would be a retreat from
much-needed reform," Gensler said, referring to JPMorgan's
The banking industry and foreign regulators have pushed
back, warning that an overly broad regime might duplicate or
conflict with rules of foreign regulators, or put certain banks
at a competitive disadvantage.
"The guidance should not overreach or step on the toes of
sovereign nations," O'Malia said o n T hursday.
Both the CFTC and the Securities and Exchange Commission --
which oversees securities-based swaps -- have promised to
release guidance to give market participants clarity on how
Dodd-Frank rules will apply to their overseas operations.