The U.S. Commodity Futures Trading Commission is poised to denyrequests from Wall Street firms for a broad delay of rulesrequiring they move their swaps transactions ontogovernment-mandated systems by Oct. 2.

Lobbyists representing market participants have asked the CFTCto delay when they must start trading on swap execution facilities,or SEFs, rather than privately in over-the-counter markets,according to letters sent to the regulator. The International Swaps& Derivatives Association and the Securities Industry &Financial Markets Association are among groups that say theirmembers need more time to prepare for the transition.

“I don't see a wholesale delay of Oct. 2,” Steve Adamske, a CFTCspokesman, said in a Sept. 24 telephone interview. Instead, theregulator will review requests for delays case by case, he said.“We will take a look at anybody who is looking for no-action reliefon a targeted basis.”

Sifma wants the deadline extended until April, according to aletter sent from the group's Asset Management Group.

“As the potential SEFs themselves are not clear about how tointerpret certain of their obligations under the SEF final rules,our members are unable to determine how to implement the transitionto swap execution on SEFs,” the group, whose members oversee about$20 trillion in assets, said in a Sept. 23 letter to the CFTC. “Wefirmly believe that without sufficient time and guidance necessaryto address key implementation challenges and interpretivequestions, an orderly transition will not be possible.”

The Dodd-Frank Act of 2010 has provisions designed to moveswaps, which helped fuel the 2008 credit crisis, from largelyunregulated trading negotiated off exchanges to more transparentsystems including SEFs, which the CFTC and U.S. Securities andExchange Commission oversee. The CFTC completed rules governing thetransactions in May, opening up competition in a market with $633trillion of over-the-counter derivatives contracts outstanding.

A broad delay of the Oct. 2 deadline is unlikely and firms thatwant more time to prepare will have to request that individually,CFTC Chairman Gary Gensler said this month at an ISDA conference inLondon, according to Risk magazine.

Today, CFTC Commissioner Scott O'Malia said during a speech inGeneva that the deadline should be postponed for everyone. Oct. 2is too soon and market liquidity may be harmed, particularly onplatforms outside the U.S., he said.

'Smooth Transition'

“Market participants would benefit from getting a time-limitedextension to allow for a smooth transition to these new executionvenues,” O'Malia said in the speech.

The Wholesale Market Brokers' Association Americas said legal,technological and logistical issues warrant a delay.

Without a delay, “instead of the usual bustle of tradingactivity, there is a risk that market activity migrates tounregistered (or non-independent) trading systems or to facilitieslocated outside of the United States,” the group wrote in itsletter to the CFTC.

The lobbyists represent the world's largest banks such asJPMorgan Chase & Co. and Deutsche Bank AG, asset managers suchas Bank of New York Mellon Corp. and brokers that arrangeover-the-counter trades between dealers such as ICAP Plc and GFIGroup Inc., according to the groups' websites.

Banks have traditionally reaped wide profit margins fromnegotiating swaps transactions, and the industry has fought theshift to SEFs. The definition of swap-execution facility wentthrough at least five changes when the legislation was negotiatedin Congress and was the focus of intense lobbying once the CFTC wasauthorized to write the specifics of how SEFs would operate.

Greenwich Associates, a consulting firm, said the move to SEFswill reduce trading costs and make buying and selling the swapseasier for bank clients such as asset managers and hedge funds,according to a Sept. 18 report.

“They will benefit from tighter spreads and access to moreliquidity providers than were available to them in the OTC market,”Kevin McPartland, head of market structure research at theconsultant, said in the report.

The CFTC has approved temporary applications to create 13 SEFs,from companies including Bloomberg News parent Bloomberg LP,IntercontinentalExchange Inc. and MarketAxess Holdings Inc.,according to the regulator's website. All of them have differentrulebooks that potential customers need additional time to assess,the WMBAA said in its letter.

“Although WMBAA member firms have begun this process in goodfaith, due to the time-intensive nature of on-boarding, it ishighly unlikely that all of the WMBAA member firms' customers willcomplete the entire process by Oct. 2,” it said.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.