The top U.S. derivatives regulator moved to close off largebanks' ability to avoid new regulation by arranging trades inAmerica and then booking the deals in overseas affiliates.

The guidance, released yesterday by the Commodity FuturesTrading Commission (CFTC), undermines a legal interpretation Wall Street had found buried in afootnote, number 513, in an agency policy document. Banks relied onthe footnote to keep swap deals off electronic platforms and awayfrom the agency's rules that were put in place in the wake of thefinancial meltdown.

Yesterday's two-page guidance, while not mentioning thefootnote, effectively closes the loophole. It tells traders that ifthey are based in the U.S. and arrange, negotiate, or execute adeal—even on behalf of an overseas affiliate—they must comply withthe CFTC regulations.