The U.S. Commodity Futures Trading Commission postponed a meeting today to propose guidance extending the reach of Dodd-Frank Act swaps rules to overseas offices of JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. and other banks as commissioners debated details of the document.
“I’m pleased that we’ll be able to put out to public comment very soon the commission’s proposal on cross-border transactions,” CFTC Chairman Gary Gensler said in an interview in Washington. “We have a consensus to move forward on this.”
The agency’s five commissioners were negotiating until late yesterday about the compliance timetable for U.S. banks compared with their foreign-based competitors. Gensler had earlier suggested a delayed timetable for overseas banks, which led to opposition from U.S. firms.
The agency’s commissioners may vote in the next few days in private to propose the guidance, according to a person with knowledge of the rulemaking who spoke on condition of anonymity. Commissioners can vote on paper without holding a public meeting in a process known as seriatim.
The proposal for so-called interpretive guidance has been criticized by U.S. bankers who say it could put them at a disadvantage to overseas competitors. The international reach of clearing and trading regulations gained urgency after JPMorgan disclosed at least $2 billion in losses on trades by the bank’s chief investment office in London.
“Modern finance has showed us time and time again that those risks keep crashing back here when there is a problem,” Gensler said in an interview this morning.
JPMorgan, Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and other U.S. banks have argued that applying Dodd-Frank to their overseas operations would hurt their ability to compete with foreign-based rivals that may face other requirements.
“If JPMorgan overseas operates under different rules than our foreign competitors, we can no longer provide the best products and services to our U.S. clients or our foreign clients,” JPMorgan’s Chief Executive Officer Jamie Dimon said at a House Financial Services Committee’s June 19 hearing on the bank’s losses. “The rules at the transaction level about margin reporting, all those requirements may enable Deutsche Bank to make the better deal.”
The international guidance sets up U.S. regulators and the CFTC as arbiters of the adequacy of the regulation outside the U.S., John Williams, a New York-based partner at Allen & Overy LLP law firm, said in an e-mail. “Non-U.S. regulators will be eager to prove, as a matter of national competitive advantage, that their regulatory regimes are comparable to each of the U.S.-style entity-level rules.”
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