The $639 trillion global swaps market is starting to fragment because regulators are failing to agree on the cross-border reach of rules, nine overseas finance officials told U.S. Treasury Secretary Jacob J. Lew.
“We are concerned that, without clear direction from global policymakers and regulators, derivatives markets will recede into localised and less efficient structures, impairing the ability of business across the globe to manage risk,” the officials, including Michel Barnier, the European Union financial services chief, and George Osborne, U.K. chancellor of the exchequer, wrote in a letter sent to Lew yesterday.
The Commodity Futures Trading Commission, the top U.S. derivatives regulator, has faced concerns from JPMorgan Chase & Co., Goldman Sachs Group Inc. and overseas regulators that its proposed rules reach too far across borders and are not workable. The agency has yet to complete the regulations.
“An approach in which jurisdictions require that their own domestic regulatory rules be applied to their firms’ derivatives transactions taking place in broadly equivalent regulatory regimes abroad is not sustainable,” the officials wrote.
The U.S. “has been working hard with regulators from key foreign jurisdictions to find practical compromises,” the Treasury Department said in an e-mailed statement yesterday. The U.S. and Japan are “furthest along in the reforms while other countries’ efforts have been delayed.” The Treasury also said the U.S. is the first country to introduce “cross-border proposals to strengthen the transparency and oversight” of over-the-counter derivatives markets.
The overseas officials’ letter was also signed by Guido Mantega, Brazil’s minister of finance; Pierre Moscovici, France’s minister of finance; Wolfgang Schaeuble, Germany’s finance minister; Taro Aso, Japan’s deputy prime minister; Anton Siluanov, Russia’s finance minister; Pravin Gordhan, South Africa’s finance minister; and Eveline Widmer-Schlumpf, Switzerland’s finance minister.
Bloomberg LP, the parent company of Bloomberg News, has filed suit against the CFTC challenging one of the agency’s proposed swaps rules.