Wall Street joins CME in winning delays of U.S. swaps rules

Relief intended to promote orderly transition

Confusion, Confidence

The CFTC’s rulemaking process has brought confusion, concern and a lack of confidence in Gensler, Senator Pat Roberts, a Kansas Republican and top member of his party on the Senate Agriculture Committee overseeing the agency.

“It’s my view that CFTC Chairman Gary Gensler is using his newfound power to unilaterally impose his will on financial markets,” Roberts said in a statement yesterday. “Most distressing is that while Mr. Gensler has tried to create his regulatory agenda, he and the CFTC have miserably failed in their oversight of existing regulations and market participants.”

Roberts called for congressional hearings to oversee the CFTC.

Starting yesterday, companies had to begin tallying their derivatives trades to determine if they will be deemed swaps dealers subject to Dodd-Frank’s highest capital, collateral and trading standards, which may erode profits. Companies with $8 billion or more in dealing business must register.

$30 Billion Profit

The designation will apply to New York-based JPMorgan and Goldman Sachs Group Inc., as well as other financial firms dominating a business that generates more than $30 billion in annual profit for the world’s largest banks, according to an estimate from consulting firm Oliver Wyman, a unit of Marsh & McLennan Cos.

The rules, more than two years in the making, will improve oversight of a market that for three decades has largely escaped federal regulation, Gensler said Oct. 10. The agency issued a series of exemptions and guidelines in recent days to ease the transition and phase in regulations.

The CFTC also provided temporary relief for companies that trade primarily foreign-exchange swaps and forwards, a market that the Treasury Department has proposed to exempt from most of Dodd-Frank’s clearing and trading regulations. Under the temporary relief, companies with foreign-exchange derivatives business putting them in excess of the $8 billion swap-dealer threshold wouldn’t be required to register with CFTC until after the end of the year.

Treasury plans to complete the decision by the end of the year, Alastair M. Fitzpayne, assistant Treasury secretary for legislative affairs, said in an Oct. 4 letter to Representative Barney Frank, a Massachusetts Democrat.

Alleviate Uncertainty

“Time limited no-action relief is warranted in order to alleviate the uncertainty on market participants who engage solely or primarily in foreign exchange swap and foreign exchange forward swap dealing activity,” the CFTC’s Barnett said in a separate letter yesterday.

Some securitization vehicles will be exempt from regulations and others may need to be evaluated in the future, the agency said Oct. 11 in a letter to the American Securitization Forum and Securities Industry and Financial Markets Association. The associations represent Charlotte, North Carolina-based Bank of America Corp. and New York-based Bank of New York Mellon Corp. among hundreds of investors, issuers and trustees who sought an exclusion from regulations.

“The commission has taken a thoughtful initial approach to this issue and we are very pleased it has formally recognized that most of the securitization market should not be considered commodity pools,” Tom Deutsch, executive director of the securitization forum, said in a statement yesterday.

The CFTC denied a full exemption to some types of securitization entities, including those used in collateralized debt and loan obligations. The agency said the industry’s request “is overly broad.”

Bloomberg News

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