January 18, 2013 / 5:46 PM / in 5 years

UPDATE 2-US SEC head says cross-border swaps plan tops agenda

* SEC’s Walter lays out top agenda items

* Says cross-border swaps rule is “critical linchpin”

* Agency also actively looking at general advertising rule

* SEC still working on risk control rules to target errors

By Sarah N. Lynch

WASHINGTON, Jan 18 (Reuters) - The new head of the U.S. Securities and Exchange Commission unveiled some of her top agenda items on Friday, saying the agency will focus on how to apply new swaps rules overseas, capital-raising reforms and market structure changes.

Elisse Walter, who took over the agency in December, said a forthcoming cross-border swaps proposal is “a critical linchpin” as the SEC finalizes derivatives rules required under the 2010 Dodd-Frank law enacting Wall Street reforms.

“That is what is first on the agenda and really stands as the most important thing we need to do as a prelude to adopting everything else,” Walter said before the SEC’s Investor Advisory Committee, a panel of outside advisers.

Dodd-Frank gave the SEC and the U.S. Commodity Futures Trading Commission (CFTC) authority for the first time to regulate the opaque $640 trillion over-the-counter derivatives market, which was a destabilizing force during the financial crisis.

New rules will require firms that deal in swaps such as Goldman Sachs Group Inc and Morgan Stanley to register with regulators.

To reduce systemic risks, many products will need to be routed through clearinghouses that guarantee trades, and some must be executed on regulated trading platforms for price transparency.

Global regulators are committed to similar rules but have not figured out how to apply the rules in each country to international transactions.

The CFTC, which will oversee the bulk of the derivatives market, has proposed a blunt approach subjecting foreign banks to the same rules as the U.S. market if they wish to do business with U.S. firms and if they exceed $8 billion in swaps trading a year.

The CFTC has been criticized because its staff issued a plan in the form of guidance instead of a more formalized and demanding rule-making process.

The SEC has been praised by lawmakers and others because it is coming up with a formal rulemaking proposal that will include an economic analysis of how a cross-border application of new rules would impact the industry.

Both U.S. and foreign regulators have been in talks over how to reach agreement on this issue.


Walter also plans to prioritize rule-making required under the 2012 Jumpstart our Business Startups (JOBS) Act. The law aims to help small businesses raise capital by loosening securities regulations.

The SEC is currently drafting a rule included in the law that would lift a longtime ban on general advertising for private placements.

Lifting the ban would make it easier for hedge funds to reach potential investors for private offerings.

But investor advocates, including members of the SEC’s Investor Advisory Committee, have criticized the proposal, saying it fails to include safeguards to prevent fraud.

The SEC is currently divided between two Democrats and two Republicans. Both Republicans support going ahead with the proposal as written, while Democratic Commissioner Luis Aguilar wants it scrapped unless more investor protections are added.

Walter, also a Democrat, said Friday the SEC is “looking very hard” at how to move forward.

She has raised concerns over the lack of investor protection but did not tip her hand about how a final rule would look.

She emphasized the agency must act because of Congress’ mandate. But she added that “nothing will come out of this building unless it has the votes” from a majority of commissioners.


Despite a heavy load the SEC faces in finalizing Dodd-Frank and JOBS Act reforms, Walter said market structure rules remain of critical importance.

Exchanges, brokerages and the SEC have been trying to come up with new regulations to help prevent technology glitches from wreaking havoc after some high-profile glitches in 2012 that shook markets. They included Nasdaq’s botched handling of the Facebook initial public offering and Knight Capital’s $440 million in losses due to a software error.

One idea that has been discussed is the development of a “kill switch” that can be used to shut down trading before an error gets out of hand. Last month, an executive at the New York Stock Exchange said exchanges were hoping to unveil a kill switch framework in the first quarter of this year.

“Very, very high on our agenda is doing a set of rules to move forward on a mandatory basis with the kinds of controls that the marketplaces have to have in place in order to try to prevent errors,” Walter said.

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