Swaps between bank affiliates exempt from clearing

Banks lobbied hard for exemption

Barclays Plc, JPMorgan Chase & Co. and other banks will be exempt from Dodd-Frank Act swap market rules when trading between their own affiliates under a measure completed by the U.S. Commodity Futures Trading Commission.

Commissioners approved a rule excluding inter-affiliate trades from requirements that swaps be guaranteed at clearinghouses that protect buyers and sellers against defaults, the CFTC said yesterday. The rule is part of the CFTC’s mandate to cut risk and expand transparency in the $639 trillion global swaps market.

“The rule requires documentation of such exempted swaps, centralized risk management and reporting requirements for such swaps,” CFTC Chairman Gary Gensler said in a statement.

Lobby groups for banks including New York-based JPMorgan and Goldman Sachs Group Inc. and London-based Barclays urged Gensler’s agency to exclude such trades from Dodd-Frank rules enacted in response to the 2008 credit crisis. Prudential Financial Inc. and a group of so-called end-users -- commercial and manufacturing firms that use swaps to hedge risk -- also sought exemption.

“Interaffiliate swaps do not introduce risks to a corporate group,” Robert Pickel, chief executive of the International Swaps and DerivativesAssociation Inc., and Ken Bentsen, executive vice president at the Securities Industry and Financial Markets Association, said in a Sept. 20 letter to the CFTC. “They allocate and transfer risks among group members.”

Bloomberg News

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