Global regulators' plans for a coordinated start next month toswap-collateral rules are breaking down, with countries takingdifferent approaches to the deadline and traders in the $544trillion industry scrambling to get ready.

The European Union plans to stick to the March 1 start date, andregulators have little power to quickly adjust laws after they goon the books, according to an EU official. In Hong Kong, Singaporeand Australia, authorities granted the industry six months to phasein the requirement, eager to avoid a messy start to a key policyintended to make the market safer following the 2008 financialcrisis.

In the U.S., the picture is even more complicated. The actingchairman of the Commodity Futures Trading Commission, who took overafter President Donald Trump was inaugurated, said the deadline isunrealistic and wants to find a way to smooththe implementation of a rule that seeks to bolster thefinancial system by forcing banks, asset managers and other tradersto hold more collateral to protect against risks stemming from adeal going bust.

“We've been raising attention to the fact that the industryfaces a real challenge to meet the March 1 deadline,” said ScottO'Malia, CEO of the International Swaps and DerivativesAssociation. “As it stands, it looks likely that many derivativesusers will be unable to access the derivatives markets from March1, unless there's some form of regulatory action.”

Small differences in the timing and substance of regulations canmean major money in the swap market, and the flap over the Marchdate shows the continued difficulty regulators have in coordinatingoversight and ensuring a level playing field to prevent tradersfrom rushing to do business in the jurisdiction with the laxestrules. The Financial Stability Board, a panel of regulators fromaround the world, last year called for urgent action by authoritiesto ensure the market didn't fragment along national lines.

The collateral requirement is one of the bedrocks of globalregulatory efforts to curb risk in the market after swaps wereblamed by lawmakers for fueling the financial crisis. Authoritiesaround the world pushed for banks, asset managers and other tradersto have cash, securities and other collateral for derivatives toprotect against the threat that one trader's default could spreadrisk throughout the financial system.

The international standards were completed at the global levelin 2015 and then written into national laws before beginning totake effect. While part of the rule was implemented in certainjurisdictions in September, the March 1 date applies to a muchwider range of firms and requires they exchange collateral known asvariation margin to cover daily market swings.

'Not Ideal'

For the EU to modify the deadline, it would have to amend therelevant legislation, a process that would take months, the EUofficial said. There is also no mechanism that would allow thebloc's supervisors to exercise forbearance, the official said.

“There remains a huge amount to be done,” said Emma Dwyer, apartner at Allen & Overy in London. “The scale of documentsthat still need to be repapered and put in place is very, veryhigh. The chances of it getting done are extremely remote.” Theprospect of key jurisdictions departing from the deadline is “notideal,” she said.

ISDA and other industry groups have referred to March 1 as the“big bang” start date for margin requirements.

“I am especially concerned that smaller firms, includingAmerican pension and retirement funds, may not be able to get theirdocumentation done in time,” J. Christopher Giancarlo, acting CFTCchairman, said on Jan. 18. “If they do not, they will be abruptlyforced to stop hedging their portfolios at a time of enormouschanges in financial rates and global asset values.”

Asset Managers

Giancarlo said that he approved of the policies in Asia to easethe transition and that the CFTC will say more on the matter soon.The CFTC, the main U.S. derivatives regulator, shares power on therule with other regulators, including the Federal Reserve, thathave kept mum so far on the timetable.

Lobbying groups for asset managers and retirement funds say theindustry simply isn't ready to meet the March deadline. Theasset-management arm of the Securities Industry and FinancialMarkets Association and the Investment Adviser Associationconducted a survey of members that found firms still face a“massive” challenge to rework legal agreements that can coverthousands of client accounts for pensions, hedge funds, privateequity firms and other types of investment funds.

“Asset managers, as fiduciaries serving these investors,continue to have concerns about their ability to hedge, manageinvestment risks, implement investment strategies and achieve bestexecution on behalf of their clients,” the groups wrote in a Jan.24 letter to a dozen global regulators.

Bloomberg News

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