By Douwe Miedema
WASHINGTON Dec 21 The top U.S. derivatives
regulator on Friday gave foreign banks more time to meet new
derivative trading rules that had earlier sparked fears that
international financial markets could pull away from U.S. banks.
The Commodity Futures Trading Commission (CFTC) said that
foreign banks now had until July 12, 2013, to comply with the
rules and said it would continue to fine tune the regulations
that have also drawn the wrath of foreign regulators.
"The relief period provides time for the Commission to work
with foreign regulators as they implement comparable
requirements," CFTC Chairman Gary Gensler said in a statement.
Countries worldwide are drawing up rules for the $650
trillion swaps industry to mend flaws brought to light by the
2007-09 financial crisis, bringing trading onto regulated
platforms and making data public.
The CFTC had been facing a year-end deadline by which it
needed to decide how its rules apply overseas or delay them. It
had drawn flak from regulators in Asia and Europe about the
blunt way it imposed its rules on banks abroad.
The delay is "very much an interim process to buy everyone a
little bit of time," said Gareth Old, a lawyer at Clifford
Chance in New York.
It will "allow the coordination between regulators, and
permit the dealers and their counterparties to adapt to the
changes that are going to be coming into place," he added.
Non-U.S. regulators are saying they are already working on
similar rules as the U.S. agency, and the potential doubling up
of the rules has sparked fears foreign banks could stop trading
with U.S. counterparties.
When an earlier deadline loomed in October, several European
banks ordered their brokers to rein in and even quit trading
some derivatives with U.S.-based peers, in a protest against the
tough new American rules.
"It is important that the CFTC continue to provide relief to
avoid confusion in the market, like that market participants
experienced on and around October 12th," the Securities Industry
and Financial Markets Association (SIFMA) banking lobby said.
The CFTC has drawn criticism over the overly aggressive way
in which it is implementing the Dodd-Frank regulatory overhaul
of Wall Street, which has so far this year forced it to send out
more than 50 letters granting temporary reprieves.
So far, the CFTC has completed two-thirds of the rules
Congress told it to write, putting it well ahead of other
agencies who are similarly executing Dodd-Frank, such as the
Securities and Exchange Commission.
Global regulators meeting in New York last month failed to
hammer out a deal on how to jointly supervise the lucrative
derivatives market, and how to rely on each other for foreign
entities operating in their jurisdictions.
A group of U.S. lawmakers across the political divide on
Thursday urged the CFTC to decide quickly how its rules apply
abroad, or risk disrupting derivatives markets.
In its present order, the CFTC said it would continue to
seek comment on how to define a U.S. person - a hotly debated
issue among lawyers because it determines how much leeway
foreign banks have to trade with U.S. banks.
Foreign banks must stick to the same rules as their U.S.
market parties if they want to do business with a U.S. person,
which includes companies, if their swaps trading volume exceeds
$8 billion a year, according to the CFTC's proposed rules.
For now, the CFTC would continue to use a narrow definition
that was largely similar to the one it used in an earlier
temporary reprieve on Oct. 12, which gave the foreign banks more
exemptions than in its original rule in July.
"It's a bit of a mixed bag. The U.S. person definition is
narrower than the original proposal, but broader than the ...
(Oct. 12) letter," said Clifford Chance's Old.
Republican Commissioner Jill Sommers disagreed with the
agency's decision, the only dissenting vote among the CFTC's
five top officials, three of whom are Democrats.
"Foreign entities will not have the basic information they
need to make informed decisions regarding the ultimate
obligations of engaging in swaps activities with U.S. persons
(the definition of which continues to shift)," she said.
"There is no reason why the Commission could not have issued
broader relief until these issues are settled. We have simply
chosen not to," she added.