CFTC to Focus on Swaps Data to Shape Regulations, O’Malia Says

The Commodity Futures Trading Commission will focus on collecting data to inform how it completes regulation of the $583 trillion over-the-counter derivatives market, said Commissioner Scott O’Malia.

The information on how many swaps trade per day and which contracts are considered standardized by the industry will make it easier to know which trades can be guaranteed by a clearinghouse, O’Malia said today in an interview at the Futures Industry Association annual conference in Boca Raton. Once clearing is established, how the trades are executed on exchanges or similar systems can be determined, he said.

“There’s a recognition that we need to phase” the rulemaking, he said. “It’s something I’ve been asking for, to step back, and I greatly appreciate that the commission and the chairman are willing to do that,” he said, referring to CFTC Chairman Gary Gensler.

Regulators in the U.S. and Europe are writing rules to oversee interest-rate, credit-default and other swaps for the first time after the market complicated efforts to resolve the financial crisis. Credit swaps were also used to mimic returns of subprime mortgages that sparked the 2007-2008 credit crisis. The CFTC and Securities and Exchange Commission have until July to finish the rule writing.

The process is now halfway done, and it’s time for the industry to work with regulators to finish the job, O’Malia said.

“We’ve defined in the draft rules what this market will look like,” he said. “We’re in this regulatory pause, but the staff is really working hard to order and sort this out.”

O’Malia had previously raised concerns that the commission was moving forward without definitions in place that would allow swaps users to know how they fit into the regulations. Proposed rules on clearing were decided before the standards to be a swaps dealer were released, for example.

The Dodd-Frank Act, which became law last year, requires all swaps transactions to be reported to swap-data repositories.

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