WASHINGTON Jan 18 The top U.S. derivatives
regulator will listen to banks and others in a public hearing
this month to find out if its rules are unduly forcing clients
out of swaps markets.
The Commodity Futures Trading Commission (CFTC), which
regulates both swaps and futures, is finishing the last building
blocks of its part of the Dodd-Frank Wall Street overhaul law,
meant to avoid a repeat of the financial crisis.
Global regulators are setting the first-ever rules for the
$650-trillion swaps market, where trading is largely executed
over the phone and data is hard to find, two factors blamed for
aggravating the 2007-09 crisis.
The CFTC on Friday called the industry to a roundtable
meeting on Jan. 31, asking for the submission of comments. The
meeting, which was first reported by Reuters, had originally
been scheduled for Jan. 24.
Banks such as Citigroup, Bank of America and
JPMorgan dominate swaps and fear that clients will start
using futures instead, because while similar, they are cheaper
to use under the CFTC's new rules.
The meeting is timely because the CFTC is finalizing rules
for exchange-like trading platforms for swaps - known as Swap
Execution Facilities (SEFs) - the details of which will
determine how costly swaps trading is.
Scott O'Malia, one of five CFTC commissioners told Reuters
last week that his agency was considering a rule for block
trades for futures that could accommodate some of the concerns
aired by the industry.
One complaint is that the new rules unfairly favor futures
markets by making it easier to do block trades, which allow
dealers to delay the reporting of transactions above a certain
threshold, so as not to show their hand.
A proposed new CFTC rule for swaps imposes stringent
requirements on block trades, which does not exist for futures.
The plan is to introduce a similar restriction for block trades
for futures, O'Malia said.
One of the four topics up for discussion at the Jan. 31
meeting was "appropriate block rules for swaps and futures,"
according to the CFTC's statement. Another topic was margin
requirements for both markets.
At a similar hearing in November, Asian and European
regulators vented their anger over the brusque manner in which
the CFTC plans to impose its rules on foreign banks. U.S.
politicians later chided the agency over the plan.
Both futures and swaps can be used to protect or hedge
against the effects of a change in anything from interest rates,
foreign exchange rates, the risk of default of companies or
governments, or commodity prices.
Futures exchanges, such as the CME Group Inc and
much-smaller rival Eris Exchange have launched products that
promise the same features as swaps at a far lower cost, stepping
into the opportunity created by the new rules.