The top U.S. derivatives regulator moved to close off large banks' ability to avoid new regulation by arranging trades in America and then booking the deals in overseas affiliates.
The guidance, released yesterday by the Commodity Futures Trading Commission (CFTC), undermines a legal interpretation Wall Street had found buried in a footnote, number 513, in an agency policy document. Banks relied on the footnote to keep swap deals off electronic platforms and away from the agency's rules that were put in place in the wake of the financial meltdown.
Yesterday's two-page guidance, while not mentioning the footnote, effectively closes the loophole. It tells traders that if they are based in the U.S. and arrange, negotiate, or execute a deal—even on behalf of an overseas affiliate—they must comply with the CFTC regulations.
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