By Douwe Miedema
WASHINGTON, Sept 27 The U.S. derivatives
regulator has been rushing through approvals for a new untested
type of trading platform before a possible government shutdown
next week, the head of the agency said on Friday.
The agency has hastily pushed out permits for companies to
run the exchanges to trade swaps - called Swap Execution
Facilities - that will go live Wednesday, as part of an overhaul
of Wall Street after the crisis.
"We now have this date of Oct. 2 coming, so we did move
through the 17 temporarily registered Swap Execution
Facilities," Commodity Futures Trading Commission Chairman Gary
Gensler told journalists.
"Frankly, the documents get only the briefest of reviews to
get them ... out the door," he said at a conference, adding the
agency was starved of funds anyway because of budget cuts.
The U.S. government was bracing for the possibility of a
shutdown of operations on Oct. 1, as a fight over public
spending reached fever pitch and Congress struggled to pass an
emergency spending bill.
The measure would affect the CFTC because unlike the banking
regulators, it is not self-funded.
Swaps are complex financial contracts that can be used to
offset financial risk, but are also a favorite speculation tool
for hedge funds, and were widely blamed for exacerbating the
2007-09 financial crisis.
The new platforms are one measure to regulate the $630
trillion market - dominated by investment banks such as JP
Morgan Chase & Co, Bank of America and Citigroup
- to make it more transparent and less risky.
The companies that had registered to run a SEF have to
comply with the CFTC's new rules that regulate how trading takes
place on Oct. 2, but many had complained that they and their
clients weren't ready to make the shift.
At a meeting with the industry this month, two CFTC
Commissioners signalled the SEFs might get more time to comply
with its rules and let them sort out a spate of logistical
issues before trading started.
But Gensler - a former Goldman Sachs banker -
indicated that a wholesale delay of the date was not an option,
even though the agency was working on a few minor last-minute
exemptions from the rules.
"Any relief that we might issue ... we'll get out by Monday
because if there were a government shut-down employees can't
come in to do such things," he said.
The relief would only be for the obligation to report trades
to data warehouses in two asset classes - foreign exchange and
energy - where platforms were less well prepared than for
interest rates and credit, Gensler said.
It would be for 15 days, a spokesman for the agency later
added, putting Gensler at a collision course with fellow
Democrat Commissioner Bart Chilton, who in a statement urged a
two-month delay, and for all asset classes.
Gensler also said that swaps trading will no longer be
permitted outside SEFs from Wednesday, and that electronic
platforms where trading is taking place now must shift their
business to the new exchanges.
"I don't think there is any doubt about what Congress said
that a facility that trades swaps had to register as a Swap
Execution Facility ... the words of the statute are really
unambiguous," Gensler said.
Lobbyists had been railing against the rule, laid out in an
arcane provision known as footnote 88.
The CFTC also told banks in a letter to give all clients
equal access to the SEFs, banning them from demanding that their
clients draw up separate risk agreements as a precondition for
letting them trade.