The U.S. Commodity Futures Trading Commission says it will giveswaps dealers more time to comply with collateral requirementsscheduled to take effect March 1, aiming to ease concerns thatglobal markets could face disruptions without a transitionperiod.

In a no-action letter issued Monday, the CFTC said that fromMarch 1 through Sept. 1, it will not recommend enforcement actionagainst dealers for failing to comply with the new rules. Theaction doesn't delay the effective date, but simply gives marketparticipants a grace period, theagency said in a statement.

“The CFTC remains committed to the March 1 date, agreed with itsfellow U.S. and overseas regulators, for posting of variationmargin on swaps transactions between swaps dealers and theirfinancial end-user customers,” Acting Chairman J. ChristopherGiancarlo said in a statement. “Nevertheless, the facts on theground cannot be ignored that as much as 90 percent of thoseend-users are not ready to meet the new requirements.”

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 2008 financial crisis. Theinternational standards were completed at the global level in 2015and then written into national laws before beginning to takeeffect. U.S. bank regulators completed their version of the rule inOctober 2015.

Thousands of companies have been working to redo legalagreements to comply with the rules, but they're unlikely to finishby the March 1 deadline, executives for groups including theInternational Swaps and Derivatives Association, the GlobalFinancial Markets Association and the American Bankers Association,wrote to authorities in a Feb. 7 letter.

The CFTC said it issued the no-action letter after hearing fromindustry participants about operational challenges in preparingdocumentation for so-called financial end-users that rely on swapsto hedge financial risk. Without the relief, swap dealers mighthave to stop trading with nondealer counterparties, which couldreduce market liquidity and limit the ability to hedge positionsfor pension funds, asset managers and insurance companies, the CFTCsaid.

“We hope that other agencies and jurisdictions can take similaraction so that there are coordinated, clear rules of the road,”David Hirschmann, president and CEO of the U.S. Chamber of CommerceCenter for Capital Markets Competitiveness, said in a statement. “Afailure to provide similar relief will only increase risk in ourfinancial system by cutting off access to the derivatives marketsas a result of noncompliance.”

Bloomberg News

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