The top U.S. derivatives regulator gave Wall Street two monthsto abide by a new policy imposing Dodd-Frank Act rules on bankswhen they arrange trades domestically and then book themoverseas.

The Commodity Futures Trading Commission (CFTC) postponed aNov. 14 advisory that undermined a legal interpretation WallStreet had found buried in a footnote, number 513, in an earlier agencydocument. Banks relied on the footnote to keep swap deals offelectronic platforms and away from the agency's rules that were putin place in the wake of the 2008 financial crisis.

In a letter released yesterday, the agency said that it agreedto the delay after swaps dealers said they needed “additional time” to “allow themto organize their internal policies and procedures to come intocompliance.”

The Nov. 14 advisory said that U.S.-based traders who arrange,negotiate, or execute a deal—even on behalf of an overseasaffiliate—must comply with Dodd-Frank, which gave the agencyoversight of the swap markets. Along with its potential to disrupttheir current deals, banks are concerned that the language in theopinion is broad enough to expose their overseas swaps to moreregulation.

The delay comes as two Wall Street trade groups, the SecuritiesIndustry and Financial Markets Association (Sifma) and theInternational Swaps and Derivatives Association, are preparing tosue the CFTC as early as this week over foreign guidance the agencyissued in July. The Nov. 14 advisory interprets that guidance.

The delay gives derivatives dealers until Jan. 14 to comply withthe new policy. One of the banks' biggest complaints has been thatthe agency refused to publicly state when it would take effect.

Five-Year Fight

Gensler and the industry have been locked in a five-year battleover rules to make the $693 trillion derivatives market safer andless opaque. How to apply the new regulations overseas has beenamong the most contentious issues, with Goldman Sachs Group Inc.,JPMorgan Chase & Co., and other swap dealers pushing to limitthe CFTC's reach into other jurisdictions.

The biggest banks conduct at least half their swaps businesswith overseas clients, according to some estimates. Gensler hasfought to extend his agency's authority into foreign transactions,pointing out that several major financial failures, including thecollapse of American International Group Inc., originated inoverseas units.

After the CFTC guidance quashed their interpretation of thefootnote, the industry decided to sue the agency, claiming that itdidn't follow the proper procedures for issuing regulations,according to people briefed on the matter.

Cheryl Crispen, a spokeswoman for Sifma, said the association isexploring “all available options” in response to the CFTC actions.A spokesman for Isda, Steven Kennedy, said the association is“extremely concerned” about the impact of the recent advisoryopinions.

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