WASHINGTON (Reuters) - Securities regulators said on Monday they are crafting a proposal to help allay confusion in the derivatives industry over how new regulations will apply to companies with global operations.
“We recognize the uncertainty that currently exists in this area,” Robert Cook, the Securities and Exchange Commission’s director of trading and markets, told industry representatives at a panel discussion in Washington.
“The SEC intends to address the relevant international issues holistically in a single proposal that we are actively working on,” he said.
It was not immediately clear if the Commodity Futures Trading Commission is considering a similar type of approach. But CFTC Chairman Gary Gensler told the panel the agency plans to seek further public comment about all of the international issues.
“You’ll be able to see a document,” he said.
Monday’s roundtable discussion, which was held jointly by the SEC and the CFTC, comes as regulators race to complete new regulations required by the Dodd-Frank Wall Street overhaul law for the nearly $600 trillion over-the-counter derivatives market.
The SEC’s international derivatives plan is expected to be unveiled sometime after the agency is done proposing the rest of its outstanding rules on capital and margin.
Monday’s event centered on concerns about how derivatives rules will apply to both U.S.-based companies such as Goldman Sachs and foreign companies such as UBS, which have a large U.S. presence.
The concerns stem from a provision in the Dodd-Frank law which says that new U.S. regulations governing clearing, trading and data reporting for derivatives could apply to overseas activities that have a direct and significant effect on commerce in America.
This has raised questions among industry players about how the SEC and CFTC’s new rules will affect them, especially because the United States is still far ahead of Europe in its progress toward implementing the new regulations.
“Market participants are concerned over how the U.S. and other jurisdictions will apply supervisory and regulatory responsibilities to swap entities, trading platforms, trading depositories and swap transactions that span multiple jurisdictions,” said Dan Berkovitz, the CFTC’s general counsel. “A key inquiry, therefore, is to determine which activities outside the U.S. meet these tests.”
Executives from banks and other financial services companies urged the SEC and CFTC on Monday to harmonize how they define U.S.-based entities so there is not disparate treatment among different derivatives products.
They also questioned the timing of regulation, saying if the United States moves too far ahead of Europe and Asia, then U.S. banks could be disadvantaged.
“Once you have this gap period between when the U.S. goes live and the rest of the world goes live, it creates a period in which business ... will flow someplace else,” said Tom Riggs of Goldman Sachs. “When the rest of world harmonizes with the U.S. approach, the question is, can you get it back?”
Ananda Radhakrishnan, the head of clearing and intermediary oversight at the CFTC, sounded skeptical about the idea of waiting for other countries to play catch-up.
“Why should we wait until other countries initiate it five years down the road? Then the momentum goes away,” he said. “I realize some of you want that momentum to go away, but from our perspective, we can’t let it go away.”
Reporting by Christopher Doering and Sarah N. Lynch; Editing by Tim Dobbyn, Dave Zimmerman