Reuters: Regulatory News: U.S. SEC unveils plan for cross-border application of swaps rules

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U.S. SEC unveils plan for cross-border application of swaps rules May 1st 2013, 13:59 By Sarah N. Lynch WASHINGTON | Wed May 1, 2013 9:59am EDT WASHINGTON May 1 (Reuters) - The top U.S. securities regulator on Wednesday was poised to propose new rules for the over-the-counter derivatives business of foreign banks, saying it was offering a middle ground in a brewing international conflict over how to regulate the $640 trillion market. The Securities and Exchange Commission's 1,000-page draft could help soothe tensions between European regulators and the U.S. Commodity Futures Trading Commission over disagreements about how far-reaching U.S. derivatives rules should be. Europeans and the CFTC have butted heads over the issue for the past year, with CFTC Chairman Gary Gensler calling for foreign banks to abide by most U.S. rules. European regulators have countered that the CFTC's aggressive approach could create duplicative regimes and have urged the United States to let them regulate the banks on their own turf. The SEC's proposal would subject U.S.-based businesses to the commission's derivatives rules, but would also allow European regulators in some cases to police swap dealers under their own rules through so-called "substituted compliance." "The staff is hopeful that the proposal will advance the dialogue with fellow regulators across the globe and move us all toward a pragmatic middle ground solution to cross border issues," SEC spokesman John Nester said. The debate over how to apply U.S. derivatives rules to banks overseas has been heating up, particularly last month after a Senate investigative panel released a report exploring how a credit derivatives trader dubbed "The London Whale" cost JPMorgan Chase $6.2 billion in trading losses out of a London office. The SEC and CFTC won broad new powers in the 2010 Dodd-Frank Wall Street reform law to police the $640 trillion over-the-counter derivatives market. The law requires swap dealers and major traders to set aside capital and post margin on some of the more complex derivatives trades. Many other swaps, meanwhile, must be routed through clearinghouses to protect against default and traded on regulated platforms to improve price transparency. It also calls for the SEC and CFTC to oversee trading in other countries in cases where it may have a "direct and significant" effect on U.S. business, though there has been debate on how to interpret that phrase. The CFTC oversees the lion's share of the market, including all interest-rate swaps, while the SEC is in charge of security-based products like equity swaps and certain kinds of credit derivatives. Link this Share this Digg this Email Reprints

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