U.S. derivatives regulators should grant a more than five-month delay in registration requirements for European swap-trading platforms to avoid disruptions in the $633 trillion global market, said Michel Barnier, the European Union’s financial services chief.
The U.S. Commodity Futures Trading Commission (CFTC), which is requiring swap-execution facilities (SEFs) to register by Oct. 2, should grant an extension to March 14 so the U.S. and Europe can reach a broader agreement on how to apply their respective rules to cross-border trades, Barnier said in a letter to Gensler dated today.
“In the absence of such relief, we risk a fragmentation of liquidity pools due to the inability of non-U.S. venues to comply with the U.S. regime, both legally and operationally,” Barnier said in the letter. “We have already witnessed that venues are being forced to split their offerings into U.S. and non-U.S. trading pools.”
The CFTC is overseeing the new platforms as part of an effort required under the 2010 Dodd-Frank Act to bring greater competition and transparency to swaps traded by firms including Goldman Sachs Group Inc., JPMorgan Chase & Co., and Barclays Plc. Largely unregulated trades helped fuel the 2008 credit crisis and led to the $182.5 billion taxpayer-rescue of insurer American International Group Inc.
Gary Gensler, CFTC chairman, has held firm on the Oct. 2 deadline, while the agency has granted temporary delays related to data-reporting and enforcement responsibilities of SEFs. Three partial delays were announced on Sept. 27.
A SEF proposed by Bloomberg News parent Bloomberg LP is among venues—including those from IntercontinentalExchange Inc., MarketAxess Holdings Inc., and Javelin Capital Markets LLC—that have won temporary approval from the CFTC, according to the regulator’s website.
Financial lobbying groups including the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association’s asset management group have pressed the CFTC to grant delays in the requirements.
The European Banking Federation trade group said the CFTC and European regulators need to make further progress on aligning rules for swap-trading platforms.