The U.S. Commodity Futures Trading Commission, facing an Oct. 12start date for a slate of derivatives rules, is being bombardedwith requests from lobbying groups to ease or delay the Dodd-FrankAct measures.

Trade associations representing agribusiness firms Bunge Ltd.and Archer Daniels Midland Co. want to delay swap-dealer rules fornon-banks. Banks and asset managers want regulators to finally saywhether foreign exchange derivatives will be subject to the rules.And representatives of Ford Motor Credit Co. and Barclays Plc havemet with CFTC staff to clarify that financial entities used forasset-backed securities are exempt.

“We urgently request that the commission delay the effectivenessof all rules until clarifying guidance, which in many cases hasbeen promised by the commission, can be issued,” the FinancialServices Roundtable, a Washington-based group representing 100 ofthe largest financial companies, said in a letter yesterday.“Without resolution on these points, our members cannot understandhow to comply with the new rules, and accordingly cannot comply.This is in no one's interest.”

Starting Oct. 12, companies must begin tallying theirderivatives trades to determine whether they will be deemed swapdealers and face Dodd-Frank's highest capital, collateral andtrading standards, which could erode their profits. The designationwill capture JPMorgan Chase & Co., Goldman Sachs Group Inc. andthe other financial firms dominating a business that generates morethan $30 billion in annual profit for the world's largest banks,according to an estimate from financial consultant Oliver Wyman, aunit of Marsh & McLennan Cos.

Lobbyists for energy firms that are swap buyers say theirclients may face higher costs stemming from the designation ifbanks and other dealers raise prices in response to new rules.

The lobbying effort comes as the CFTC and Securities andExchange Commission prepare to finally put rulemakings into effectmore than two years after the passage of Dodd-Frank, thefinancial-regulation overhaul designed to reduce risk and increasetransparency in the $648 trillion swaps market.

The CFTC has completed 39 rules and “substantive swaps marketreform is now in sight,” Chairman Gary Gensler said in an Oct. 1speech in London. The agency has yet to complete rules governingcapital, margin, new swap-trading venues and the internationalscope of its measures.

Swaps and other derivatives are financial instruments based onstocks, bonds, loans, currencies and commodities that can be usedto hedge risks or for speculation. Largely unregulated trading ofderivatives tied to mortgage bonds helped spark a credit crisis in2008 after the housing market collapsed.

Risk Management

Regulations that were set to take effect Oct. 1 about riskmanagement standards between brokers and their clients have alreadybeen delayed after a request from the Futures Industry Association.A separate rule governing how quickly trades must be accepted orrejected for clearing prompted requests for relief from companiesincluding LCH.Clearnet Group Ltd., the world's largest interestrate swap clearinghouse.

The lack of clarity around the rule requiring banks andclearinghouses to accept trades within minutes came to a head lessthan two weeks before the rule's Oct. 1 effective date, as marketusers and regulators wrangled in a Sept. 19 meeting at the CFTC,according to seven people who participated.

Ananda Radhakrishnan, the CFTC's director of the division ofclearing and risk, organized and led the meeting, where banksargued the time limit compromised their risk standards and moneymanagers said it was an attempt by the dealers to stymie electronictrading, said the people who asked not to be named because thediscussion was private.

While improving price transparency is a goal of regulatorsincluding Gensler, it would cut the amount of money banks earn frombuying and selling swaps. Though it may seem an arcane bit ofrulemaking, it's vital to digital trading, said Craig Pirrong, afinance professor at the University of Houston.

“It's an illustration that the small things are big and the bigthings are bigger,” Pirrong said. “It's going to be a torturousprocess to get all this Dodd-Frank stuff in place.”

Under one rule scheduled to take effect Oct. 12, a company thatcrosses the $8 billion swap-dealer designation threshold this monthwould have until the end of the year before it must register withregulators. Companies with at least $25 million of business with aso-called special entity would also require registration.

The $25 million threshold has led the Electric Power SupplyAssociation to file a petition seeking an exemption for swaps tiedto utility operations.

'One Contract'

“Under the current rules, just one contract could exceed the deminimis threshold for special entities and cause the counterpartyto become a 'swap dealer,'” the association wrote in an Aug. 14letter. That designation will discourage trades with utilities forcompanies that do not want to become dealers, the group said in itsletter.

The American Bankers Association has urged the CFTC to publishguidance about the types of clients that are still permitted totrade over-the-counter swaps. Dodd-Frank restricted the privateswaps market to so-called eligible contract participants. The CFTChas yet to provide clarity about how banks are supposed to verifythat clients meet the requirements, according to the ABA.

Separately, under the CFTC's determination of which contractsare swaps, companies would need to start tallying foreign-exchangeswaps and forwards toward the threshold for becoming swap dealers,commodity pools and so-called major swaps participants. Dodd-Frankgave the Treasury Department power to exempt foreign-exchangederivatives from most rules.

In April 2011, Treasury proposed an exemption for the trades andsaid the foreign-exchange market already had adequate levels ofprice transparency, risk management and electronic trading. Acoalition of 20 firms, including Deutsche Bank AG, Bank of New YorkMellon Corp. and UBS AG, asked Treasury Secretary Timothy F.Geithner for the exemption.

Treasury will probably reach a final decision by the end of theyear, according to a senior Obama administration official who spokeon condition of anonymity because work on the determination isongoing.

The Investment Company Institute and Securities Industry andFinancial Markets Association are among groups that have askedregulators to grant an exemption before Oct. 12.

'Unintended Consequence'

“Failure to do so will have substantial and unintendedconsequence,” the groups said in a Sept. 28 letter. “If theTreasury Secretary will be unable to do so, we request that heissue an interim determination that FX products should be exemptfrom the swap definition.”

Treasury and the CFTC have faced pressure from lawmakers tocomplete the determination and improve coordination.

“If Treasury ultimately plans to provide an exemption, it wouldbe a complete waste of time, effort and resources to forcecompanies which will ultimately be exempt to go through theregistration process, restructure their activities or even withdrawfrom the FX market solely because of inconsistencies between yourtwo agencies' timetables,” Representative Barney Frank, aMassachusetts Democrat, said in a Sept. 21 letter to Geithner andGensler.

Bloomberg News

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