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CFTC Proposes Six-Month Delay of Swap Rules Slated for July

Commodity Futures Trading Commission's Gary Gensler
Gary Gensler, chairman of the Commodity Futures Trading Commission. Photographer: Andrew Harrer/Bloomberg

Rules scheduled to take effect in mid-July for the $601 trillion swaps market would be delayed until as late as the end of the year under a proposal by the U.S. Commodity Futures Trading Commission.

The agency’s commissioners voted 5-0 today to propose “temporary relief” from some requirements set to be in place on July 16, a year from the enactment of the Dodd-Frank Act. The delay would give the CFTC more time to write dozens of rules aimed at reducing risk and boosting transparency after largely unregulated trades helped fuel the 2008 credit crisis.

“Some might ask: why six months? Six months will provide the commission with the opportunity to re-examine the status of final rulemaking in light of the changed regulatory landscape at the time,” Gary Gensler, CFTC chairman, said at the meeting in Washington. The proposal is open to 14 days of public comment before it is finalized.

Under the proposal, Dodd-Frank provisions scheduled to take effect July 16 and that refer to agency rules that haven’t been finalized would be delayed until those rules are adopted, though not later than Dec. 31. The agency’s commissioners also could decide to push the deadline into 2012 if they find that more time is needed, according to the CFTC.

Gensler today set forth a possible timetable for finishing the Dodd-Frank rules by the end of the year. For example, he said, commissioners may begin in July the process of finalizing rules designed to combat manipulative trading and for reporting standards for large traders. In September the agency could move toward completing rules related to clearinghouses and business conduct standards, he said.

Full Agenda

The CFTC scheduled its next meeting for July 7.

“I think it’s doable, but it’s a lot on our agenda,” Gensler said. “We might be looking at meetings that have three and four and five rules per meeting.”

A second part of today’s proposal is designed to temporarily allow financial and energy swaps to continue to be traded directly between buyers and sellers after the July 16 deadline written into the law. Dodd-Frank seeks to have most swaps guaranteed by clearinghouses that stand between counterparties and traded on exchanges or other venues.

The six-month delay is arbitrary and may confuse participants in the swap market, Scott O’Malia, a Republican commissioner, said at the meeting.

‘Not Sufficient’

“A six-month timeline is not sufficient to provide for a seamless transition until final commission rules are implemented,” he said, while voting in support of the proposal.

The commissioners voted 3-2 against a change in the proposal that would have removed the six-month time period for the delay and postponed the measures until rules are finalized by the agency.

The CFTC and Securities and Exchange Commission have faced calls from members of Congress and the financial industry to provide legal certainty to contracts that occur after July 16 and before the final rules are implemented.

“It’s a big practical concern,” Willa Cohen Bruckner, partner at Alston & Bird LLP, said in an interview before the meeting. “Legal uncertainty always comes with the chance it will reduce business.”

The CFTC proposal wouldn’t apply to futures, options on futures or transactions by retail customers in foreign currencies or other commodities.

The SEC, which has authority over security-based swaps, will publish guidance on which rules take effect on July 16 and will provide “temporary relief” from some provisions, the agency said last week.

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