Wrangling Over Overseas Swaps Continues

Six Democratic senators urge the CFTC to take more time determining the overseas reach of Dodd-Frank rules, while CFTC chair reiterates intent to move forward by July 12.

U.S. regulators will inject risk into the derivatives market if they don’t take more time to coordinate Dodd-Frank Act rules with their overseas counterparts, six Democratic senators said.

The Commodity Futures Trading Commission (CFTC), facing a July 12 deadline to determine the overseas reach of its rules, should take additional time to coordinate oversight with other regulators, the senators said in a letter yesterday to Treasury Secretary Jacob J. Lew.

“Creating an overly complicated compliance system for market participants will result in conflicting, duplicative or inconsistent rules that could foster new and unforeseen risks and lead to international regulatory arbitrage,” the senators said. “More time is needed for domestic harmonization and sequencing with regulations that occur abroad.”

The letter was signed by Kirsten Gillibrand of New York, Tom Carper of Delaware, Kay Hagan of North Carolina, Heidi Heitkamp of North Dakota, Michael Bennet of Colorado, and Charles Schumer of New York.

Steve Adamske, the CFTC spokesman, and Suzanne Elio, Treasury Department spokeswoman, both declined to comment.

The guidance would govern the reach of rules affecting Goldman Sachs Group Inc., JPMorgan Chase & Co., Barclays Plc, and other banks, hedge funds, and companies in the $633 trillion global swaps market.

The international reach of the CFTC swap trading requirements has been one of the most controversial elements of the agency’s Dodd-Frank Act rules, prompting opposition from financial companies including Goldman Sachs and Barclays.

Democratic Senators Sherrod Brown of Ohio, Carl Levin of Michigan, Tom Harkin of Iowa, Elizabeth Warren of Massachusetts, Jeff Merkley of Oregon, and Dianne Feinstein of California in May urged the CFTC to strengthen the reach of its rules.

“If anything, the CFTC should be going further,” Warren said in a telephone interview today. “If the last piece is a loophole that lets any company operate through guaranteed affiliates using a post office box in some foreign jurisdiction, then it undercuts everything we’ve done.”

CFTC Chairman Gary Gensler said June 25 that his agency should push through its cross-border derivatives guidance by July 12 and opposed a proposal from a fellow Democrat on the commission, Mark Wetjen, for “interim final guidance” that could be amended based on industry and public feedback.

“It means delay, and I think we’ve had a year to do this,” Gensler told reporters after testifying before a Senate Appropriations subcommittee in Washington. “The American public should hold us to task if we can’t get this done by July 12. They should say, ‘Why does it take so long, and are we doing too much to accommodate Wall Street?’”

Jill E. Sommers, a Republican CFTC commissioner, released a statement yesterday defending Wetjen’s position and criticizing Gensler’s contention that efforts to delay rules are meant to undermine Dodd-Frank, the regulatory overhaul enacted in response to the 2008 credit crisis.

“No one has ever accused Gary Gensler of being reasonable,” Sommers said in her statement. “I may not totally agree with it, but Commissioner Wetjen has put a reasonable proposal on the table that would achieve multiple goals. He understands the importance of working in good faith with other global regulators.”

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