* Dodd-Frank rules require increase in use of clearing
* CFTC commissioners vote 4-1 to approves new rules
* CFTC remains far behind on major rules from 2010 law
By Christopher Doering
WASHINGTON, March 20 The U.S. futures regulator o n Tuesday approved rules outlining clearing requirements for swaps, a step regulators hope will increase transparency over Wall Street's risky bets and make markets operate more smoothly.
The Commodity Futures Trading Commission's measures, approved 4-1 by the agency's five commissioners, detail the documentation for customer clearing, requirements for processing of their positions and risk-management procedures that must be followed by clearing members.
The rules are expected to go into effect by Oct. 1.
"I have listened to and met with some who seem to think this rule ... is going too far. But I don't agree," said Bart Chilton, a Democratic CFTC commissioner.
"What we are doing in this instance is a necessary step in the transition to safe and more efficient and effective markets," he said.
Credit default swaps, a type of over-the-counter derivative, were blamed for amplifying market distress in 2008 as the world slipped into economic recession.
Congress in 2010 passed the Dodd-Frank law, which established a framework for regulators to boost oversight of the previously opaque $700 trillion OTC swaps market.
The law requires swaps dealers and large participants to trade swaps on exchanges or platforms known as swap execution facilities, and use clearinghouses to reduce market risk.
Swap data repositories would act as a warehouse to collect the information.
The CFTC rules passed on Tuesday establish documentation requirements that protect a customer by banning so-called tri-party agreements among customers, swap dealers and futures commission merchants (FCMs) that are clearing members, and clearinghouses.
The measure prevents certain documentation that would disclose the identity of a customer's original executing counterparty, limit the number of counterparties with which a customer may enter into a trade, or restrict the size of the position a customer can take with any individual counterparty.
SLOW THE RULEMAKING
Scott O'Malia, a Republican CFTC commissioner, voted against the rules. He said the agency had failed to develop a schedule that integrated them with other regulations and that there had been an insufficient review of the rules' costs versus benefits.
"I know the commission is capable of much more. The question remains, however, if we will ever slow down our rulemaking machine to do the actual work," O'Malia said. "We can't ignore and not look because it's hard."
The rules also include procedures to be followed when trades are submitted for clearing.
The regulations require a clearing member, or the clearinghouse, to accept or reject each trade submitted for clearing as quickly as "technologically practicable", but usually between milliseconds to at most a few minutes.
A swap dealer, swap execution facility, designated contract market, and FCM also would have a limited time to submit swaps to a clearinghouse.
In addition, the CFTC would require swap dealers and FCMs that act as clearing members to follow risk-management rules.
Clearing members would have to establish certain procedures, including setting limits for their customers, monitor accounts for adherence to those limits and conduct stress tests of their positions.
The futures regulator has competed about 30 Dodd-Frank rules and has 20 more to go, including swap and swap dealer definitions and measures outlining capital and margin requirements - factors that will highlight who will have to comply with the potentially costly and onerous measures.