WASHINGTON The U.S. derivatives regulator late on Friday gave a new and untested type of trading platform a bit more time to comply with some of its rules, to smooth the transition to regulated trading next week.
The Commodity Futures Trading Commission (CFTC) has been rushing through permits for the platforms - called Swap Execution Facilities - that must open their doors for customers on Wednesday.
The agency wanted to be ahead of a possible U.S. government shutdown next week, but has refused to give in to industry demands to delay the October 2 deadline by which the newly created SEFs have to comply with its rules.
Swaps are complex financial contracts that can be used to offset financial risk, but are predominantly a favorite speculation tool for hedge funds, and were widely blamed for exacerbating the 2007-09 global financial crisis.
The new platforms are one measure to regulate the $630 trillion market - dominated by investment banks such as JP Morgan Chase & Co (JPM.N), Bank of America (BAC.N) and Citigroup (C.N) - to make it more transparent and less risky.
Late on Friday, the CFTC issued three letters delaying some of the strict new rules for the SEFs, which are run by large derivative brokers such as ICAP (IAP.L) and GFI GFIG.N but also by Bloomberg LP and Thomson Reuters (TRI.TO).
They can now delay trade reporting by one month for foreign exchange swaps, and by two months for equity and other commodity swaps, one of the letters said.
CFTC Chairman Gary Gensler said on Friday that there would be no delay for data reporting for fixed income and credit swaps, the bulk of the market.
The companies can also delay certain documentation and technological connectivity requirements, collectively known as onboarding, by up to a month.
A spokesman for Gensler said the onboarding delay would be for two weeks, but Commissioner Bart Chilton pushed for a two-month delay and the period was then extended at the last minute.
The delay in onboarding will be welcomed by SEF clients such as large asset managers who had complained there wasn't enough time to go through all the rule-books and make an informed choice who they wanted to do business with.
The third letter granted swap counterparties the same reporting delay as the SEFs, because the reporting by the former can depend on that by the latter.
The SEF rules ban the practice of privately negotiating swap deals - something that was largely done over the phone and was therefore hard to control.
Deals must now be entered into systems that are more like stock exchanges, though negotiating over the phone will still be allowed as long as buyers and sellers can prove that they have spoken to more than one counterparty.
(Editing by Christopher Wilson)