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SEC Aims to Avoid July Dodd-Frank Swaps Rules ‘Black Hole’

The U.S. Securities and Exchange Commission will delay some Dodd-Frank Act derivatives measures scheduled to take effect in July, giving regulators more time to finish rules for the $601 trillion market.

Dodd-Frank, the financial-regulation overhaul enacted last year, set a mid-July deadline for measures designed to improve transparency and reduce risk in the over-the-counter swaps market. The SEC and the Commodity Futures Trading Commission are continuing to seek comment on rules, and have said they would miss the scheduled completion date for some measures.

Swap users could face a “black hole” in the market if regulators don’t explain which provisions take effect without rules being finished, Senator Pat Roberts, a Kansas Republican, said yesterday in a Bloomberg News interview. Dodd-Frank imposed the first rules for the swaps market, which had gone largely unregulated since its inception more than 30 years ago.

The SEC will publish guidance on which rules take effect on July 16 and will provide “temporary relief” from some provisions, the agency said today in a statement. The CFTC has set a June 14 meeting to weigh effective dates for its rules.

The CFTC, which will oversee all but security-based swaps, has “ample latitude” under the law to determine when the provisions take effect, Chairman Gary Gensler said on June 2.

Once the SEC has proposed all of its derivatives rules, it will publish a plan for when they will be implemented, according to the statement released today. CFTC Commissioner Scott O’Malia has sought a similar implementation plan for his agency.

Registration Requirements

Separately today, the SEC proposed a rule that would exempt security-based swaps from registration requirements when they’re issued by clearinghouses that stand between buyers and sellers. Registration of derivatives such as credit-default swaps could “unnecessarily impede” use of clearinghouses meant to reduce risk, the SEC said in the proposal, which was released for public comment.

“No one would transact in them because of the cost involved in getting a registration statement together,” Donald N. Lamson, counsel at Shearman & Sterling, LLP in Washington, said today in an interview. “It’s a commonsense approach.”

Derivatives, including swaps, are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates.

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