Top executives of the two largest U.S. derivatives exchanges say regulators must take further steps to align Dodd-Frank Act rules with those of foreign counterparts to avoid oversight splits that could harm markets.
The Commodity Futures Trading Commission and overseas agencies have a few months to improve coordination before differences hurt business, IntercontinentalExchange Inc. Chairman and Chief Executive Officer Jeffrey Sprecher said in remarks for a House Agriculture Committee hearing where he will testify alongside CME Group Inc. Executive Chairman Terry Duffy.
“Global financial reform efforts are not being harmonized and substantial differences remain between regulatory regimes,” Sprecher said in comments prepared for today’s hearing in Washington. “It is crucial to understand that if countries erect these barriers, we markets and market participants will be damaged.”
The CFTC and Securities and Exchange Commission are leading U.S. efforts to revamp oversight of the $633 trillion global swaps market after unregulated trades helped fuel the 2008 credit crisis. Representative Frank D. Lucas, the Oklahoma Republican who leads the Agriculture Committee, called the hearing to begin considering changes to the law that authorizes the CFTC to provide oversight of swaps and futures markets.
In his prepared remarks, Duffy warned lawmakers that a proposal to pay for market oversight through industry fees would drive business out of the U.S.
The international reach of the CFTC’s swap rules has been one of the most contentious parts of the agency’s Dodd-Frank work, drawing opposition from banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Barclays Plc. European and Asian regulators criticized the U.S. agency for the reach of a rule requiring trades to be guaranteed at clearinghouses and traded on exchanges or other platforms.
Swaps rules under consideration by the CFTC and SEC are fragmenting the global market, nine overseas finance officials said in an April 18 letter urging U.S. Treasury Secretary Jacob J. Lew to limit Dodd-Frank’s reach.
“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 to Lew, who has no formal role in SEC and CFTC rulemaking.
CFTC Chairman Gary Gensler has pushed for rules to cover foreign branches and subsidiaries of U.S. banks unless overseas regulations are comparable enough to accomplish the same goals.
At today’s hearing the Agriculture Committee will also debate ways to improve protection of client funds after money went missing during the downfalls of MF Global Holdings Ltd. and Peregrine Financial Group Inc.