SINGAPORE, Dec 4 (Reuters) - U.S. regulators will likely miss a December deadline to finalise a key part of their cross-border rules on swaps trading, a top derivatives regulator said on Wednesday, a delay that will bring more frustration to foreign regulators and banks.
Trading desks in Europe and Asia are eagerly waiting for the United States to stipulate under what conditions they can follow just their domestic rules on swaps trading and still continue to deal with U.S. counterparties, rather than abiding by the Dodd Frank regulation as well.
However, Scott O‘Malia, a Republican commissioner at the Commodity Futures Trading Commission (CFTC), said the Dec. 21 deadline of finalising rules on “substituted compliance” is unlikely to be met.
O‘Malia said that while a draft document on the issue had been circulated to foreign regulators for their input, it did not have details on certain key areas such as trade reporting.
“I know for a fact that not all of the documents have been circulated to the regulators,” he said in an interview on the sidelines of a derivatives conference in Singapore.
“So it’s obviously evolving and while I‘m pleased we are sharing it to get their input, it will be a challenge to get it done by the 21st,” he added.
Major economies around the world are bringing in new rules to make trading in the $693 trillion over-the-counter derivatives market more transparent.
The U.S. wants its regulation to extend to trades conducted overseas if they could have an impact on its domestic economy, unless its regulators are satisfied that local rules governing those deals are tough enough.
Banks in Asia and Europe are complaining that following two sets of rules will lead to conflicting obligations and be unnecessarily costly for them when trading over-the-counter derivatives.
Foreign regulators have accused the CFTC of stepping on their turf by prescribing detailed trading rules for banks in their jurisdictions.
However, some U.S. regulators argue that during the 2008 financial crisis derivatives trading at overseas subsidiaries of firms like insurer American International Group damaged the U.S. financial system.
O‘Malia said he agrees the U.S. rules reach too far, but that the CFTC should take longer to finalise the guidelines on substituted compliance so that they work well.
“Make sure everybody understands what rules apply to whom and who the appropriate regulator is,” he said.
O‘Malia declined to say whether he had decided how he would vote next week on the Volcker rule, which will ban Wall Street banks from betting with their own money, as he had not yet seen a final version of the proposed regulation.
“We are going to be voting on this in less than a week’s time, it would be nice to have a draft of a 1000 page rule,” he said.
The CFTC, along with the U.S. Federal Reserve and the Federal Deposit Insurance Corporation, are due to vote on the rule on Dec. 10.
Treasury Secretary Jack Lew wants the rule to be finished this year, although the different regulators are still trying to reach a compromise on the exact wording of the text.
O‘Malia said he expected Lew’s target will be met.
“That seems very likely,” he said.