U.S. banks and other financial firms won a three-month delay foras much as half of the interest-rate swap market to meet a federalrequirement to trade on platforms designed to increase competitionand transparency.

The U.S. Commodity Futures Trading Commission (CFTC) announcedin a letter released yesterday that trades consisting of multiplecomponents won't need to be transacted on swap-executionfacilities, or SEFs, until May 15. The agency said it hadn't ruledout further extending the new deadline in the Dodd-Frank Act requirement originally set to start Feb. 15.

The delay, which estimates have shown will affect between aquarter and half of of the interest-rate swaps market, “allows usmore time to figure out what to do,” with the packaged trades, MarkWetjen, acting chairman of the CFTC, said at a meeting inWashington. “It certainly doesn't foreclose additional action,” hesaid, adding that “we have some flexibility with that date.”

The delay comes days before the start of a government mandate torequire many types of interest-rate and credit-default trades tooccur on the facilities. The 2010 Dodd-Frank overhaul of U.S.financial regulation sought to have most swaps traded on SEFs orother exchanges to increase price competition and transparency inthe market after credit-default swaps helped fuel the 2008 creditcrisis.

Banks, trading platforms, and asset managers have told the CFTCthat the industry lacks the infrastructure necessary to havepackaged trades occur by this week on the new platforms. Theindustry is not yet able to assess the risk of the packages as oneunit, Sunil Hirani, chief executive officer of trueEX LLC tradingplatform, said in an email.

'Much-Needed Relief'

“There is some additional infrastructure that needs to be builtout,” Hirani said. “This no-action allows for that much-neededrelief.”

Platforms owned by Tradeweb Markets LLC, ICAP Plc, MarketAxessHoldings Inc., trueEX LLC, GFI Group Inc., and Bloomberg LP, parentof Bloomberg News, have temporarily registered with the CFTC. TheSEFs facilitate transactions among banks and also between banks andasset managers or other clients.

The Managed Funds Association, a lobbying group for hedge funds,estimated in November that packaged trades represented a quarter ofinterest-rate transactions on platforms last year. The CFTC'seconomist office estimated that packaged transactions comprise 50percent of the notional volume of the interest-rates market,according to a Jan. 16 statement by Scott O'Malia, a Republicancommissioner.

“It's a sizable chunk of this market that's getting athree-month delay,” Marcus Stanley, policy director of Americansfor Financial Reform, a group including the AFL-CIO laborfederation, said in a telephone interview. “There is this patternthat whenever you approach a deadline there is a special exceptionor delay and you push it back further.”

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