Swaps-market participants will have a grace period before tradesare required to be cleared, settling confusion over a rule thatwill begin early next year, said Commodity Futures TradingCommission Chairman Gary Gensler.

Firms dealing in $648 trillion of outstanding swaps contractsexpected that trading during a phase-in period wouldn't need to beprocessed by central clearinghouses, according to an Oct. 5 e-mailsent to clients by Davis Polk & Wardwell LLP, which representsthe Securities Industry and Financial Markets Association. Whilethe firms were wrong, misreading one sentence in 17,000 words ofregulation, Gensler said today the idea was always to allow a graceperiod.

“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 intoclearinghouses. “This was an easy one for me,” Gensler said.