Reuters: Regulatory News: UPDATE 1-CFTC may delay some derivatives rules for foreign banks

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UPDATE 1-CFTC may delay some derivatives rules for foreign banks Jun 14th 2012, 15:27 Thu Jun 14, 2012 11:27am EDT * CFTC's Gensler: may phase in foreign dealer compliance * Says JPMorgan losses reminder of how risk flows back to US By Karen Brettell NEW YORK, June 14 (Reuters) - The Commodity Futures Trading Commission may delay by up to a year rules that would require large foreign banks active in the $650 trillion derivatives markets to comply with U.S. derivatives rules at the entity level while it finalizes details, CFTC Chairman Gary Gensler said on Thursday. Gensler said that the CFTC is considering phasing in requirements for foreign dealers to comply with U.S. regulations, and that the commission would work with market participants and foreign regulators on alternative compliance during any delay. "Entity-level requirements (other than reporting to swap data repositories) that might come under substituted compliance may be delayed for up to one year," he said. The regulation of foreign banks that are active in the U.S. derivatives market is among the most hotly debated topics in the implementation of rules for the privately traded markets that were blamed as a key contributor to the 2007-2009 financial crisis. Large foreign banks that are active in U.S. markets are seeking relief from some U.S. regulations if they are subject to comparable rules overseas. Bank critics, however, fear that banks will use different regulatory regimes to avoid stricter rules in a so-called regulatory race to the bottom. JPMorgan Chase & Co's recent losses from outsized credit derivatives trades made out of its London-based Chief Investment Office are a strong reminder that risks from derivatives trades entered into overseas can quickly reverberate back to U.S. shores, Gensler said in prepared remarks for a meeting of the Institute of International Bankers in New York. "We've seen this movie before. Financial institutions set up hundreds, if not thousands of legal entities around the globe. During a default or crisis, risk of overseas' branches and affiliates inevitably flows back into the United States," he said. Gensler said the commission is close to sending out proposed rules for public comment relating to rules for foreign entities active in the U.S. These may include requirements that foreign banks be required to register as a swap dealer with the CFTC if it trades over a set threshold of activity. Foreign banks that enter into derivatives trades with U.S.-based counterparties would also be required to comply with U.S. rules at the transaction level and would also be required to report trades made with U.S.-based trading partners to a trade warehouse or the CFTC, Gensler said. Entity level rules would relate to issues including capital requirements, risk management, record-keeping and trade reporting while transaction level rules would include central clearing, margin requirements, public real-time price reporting and trade execution and sales practices, Gensler said. Link this Share this Digg this Email Reprints

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