SEC Extends Swaps Clampdown

Commissioners vote unanimously to extend agency's rules to trades made by foreign divisions of U.S. banks that are legally guaranteed by the parent company.

U.S. banks’ overseas swaps trades face new curbs under a U.S. Securities and Exchange Commission (SEC) plan adopted today, even as some members warned the regulation may not go far enough to rein in recent Wall Street efforts to escape the Dodd-Frank Act.

The SEC voted 5-0 to extend the agency’s rules to transactions executed by foreign divisions of banks, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., when the affiliate’s trades are legally guaranteed by the parent company. The new rule comes as Wall Street has removed those guarantees to avoid Dodd-Frank Act regulations issued by another regulator, the Commodity Futures Trading Commission (CFTC).

Advocates of stricter regulation had urged the SEC to expand its authority over U.S. banks’ swaps trading abroad. The agency should have broadened its definition of guaranteed trades to include those with the “implicit” backing of a U.S. parent company, according to groups such as Better Markets, a Washington-based non-profit that advocates for tougher financial regulation.

“They have seen how Wall Street has evaded the CFTC’s rules since last July,” said Dennis Kelleher, president of Better Markets. “We have spent hours with the SEC staff discussing this and a straightforward solution: Directly prohibit de facto guarantees, Wall Street’s latest tactic to avoid sensible and necessary rules.”

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