WASHINGTON Top U.S. regulators on Thursday said they hoped to give the $650 trillion derivatives industry more time as they work out how the new regulations on swap contracts will apply overseas.
Many foreign banks, as well as U.S. banks, face a December 31 deadline by which they need to comply with many of the new rules from the top U.S. derivatives regulator for swaps, financial instruments used now mostly for speculation.
The way in which the CFTC is imposing its rules on foreign banks has drawn fierce criticism from regulators in Europe and in Asia, who say they are already working on similar rules, sparking fears that foreign banks would stop trading with their U.S. counterparts.
But two commissioners at the Commodity Futures Trading Commission (CFTC) on Thursday told a Congressional hearing they were working on an order to grant the banks another delay.
"It is both my hope, and commissioner (Bart) Chilton's hope that we have something that is clear and clarifies all these issues for market participants within the next week," CFTC Commissioner Jill Sommers said.
Countries across the world are writing rules for swaps for the first time to mend systemic flaws brought to light by the 2008 financial crisis, bringing trading on regulated platforms and making more trading data public.
Sommers, a Republican, and Chilton, a Democrat, have often disagreed on CFTC policy in the past. They are two out of five commissioners including Chairman Gary Gensler - a former Goldman Sachs banker - to decide on the issue.
Under its current guidance, the CFTC forces foreign banks to stick to the same rules as U.S. market parties if they want to trade with U.S. firms, and if they exceed a threshold of $8 billion in swaps trading a year.
The CFTC will only grant an exception in some cases, if the local regulator has rules that are comparable to its own rules - a legal principle that is known as substituted compliance.
The modified order that Chilton and Sommers said would appear within the next week, is the final version of the CFTC's proposed guidance, which came out in July.
In October, the CFTC issued a first reprieve from its own guidance, giving a narrower definition of what constitutes a U.S. person, which includes firms, thereby easing the rules for foreign banks wanting to deal swaps.
Sommers said that she wanted a narrow definition to be included in the CFTC's guidance permanently, but that the final wording was still under discussion, and that she could not predict the outcome of the debate.
"I would have no way of knowing. We're still working on the definition ... It matters what the words on the page are, and getting people's votes, so I have no idea how that would show up," she told journalists after the meeting.
The degree to which the CFTC relies on foreign regulators, one of the most thorny issues in the cross-border debate, could be solved at a later date, Sommers said.
"What we would all like, is to allow for comparable regulation by foreign regulators. We have no desire to have little CFTC deputy agents, you know, running around Brussels," Chilton said during the session.
(Reporting by Douwe Miedema)