Swaps-market participants will have a grace period before trades are required to be cleared, settling confusion over a rule that will begin early next year, said Commodity Futures Trading Commission Chairman Gary Gensler.

Firms dealing in $648 trillion of outstanding swaps contracts expected that trading during a phase-in period wouldn't need to be processed by central clearinghouses, according to an Oct. 5 e-mail sent to clients by Davis Polk & Wardwell LLP, which represents the Securities Industry and Financial Markets Association. While the firms were wrong, misreading one sentence in 17,000 words of regulation, Gensler said today the idea was always to allow a grace period.

“I know what I believed when I voted on it, it was prospective,” he told reporters today at Sifma's annual conference in New York, saying that the market needs time to adjust to the “paradigm shift” of bringing U.S. oversight to unregulated interest-rate, credit-default and other swaps and to move them into clearinghouses. “This was an easy one for me,” Gensler said.