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CFTC May Propose Clearing and Trading Implementation Rules

The U.S. Commodity Futures Trading Commission may require Wall Street banks to clear swaps three months after the agency decides which trades must be guaranteed by central clearinghouses.

The proposal, under consideration today by the agency’s five commissioners at a Washington meeting, is part of a timetable for when Dodd-Frank Act regulations must take effect in the market. The CFTC will need to delay some Dodd-Frank rules into the first quarter of 2012, said Gary Gensler, CFTC chairman. Votes on capital and margin requirements and final rules governing business conduct standards are unlikely until next year, Gensler said.

Dodd-Frank, the financial overhaul enacted in July 2010, seeks to reduce risk and boost transparency in the $601 trillion market by having most swaps guaranteed by central clearinghouses and traded on exchanges or other platforms. Largely unregulated swaps helped fuel the 2008 credit crisis. Dodd-Frank rules will govern trades conducted by companies including Goldman Sachs Group Inc., Morgan Stanley and Cargill Inc.

The clearing proposal considered today would phase in the rules for other institutions, requiring private funds and pensions to comply within six months and some smaller users within nine months. The proposal would be open to public comment before it is completed.

The proposal can’t take effect until the CFTC also completes final rules defining which firms are swap dealers and major swap participants and which trades are considered swaps. The agency hasn’t yet announced meetings to vote on those rules.

Rules Delayed

The proposals “force us to wake to reality and recognize that the earliest the commission can complete the last of the triggering rules is the end of the first quarter of 2012,” Scott O’Malia, a Republican commissioner, said in a statement prepared for the meeting.

The CFTC proposal would set an implementation timeline for when swaps must be traded on exchanges or other platforms. Under the plan, swaps that are cleared would need to be traded on an exchange within three months or within a month after a trading venue decides it can allow the product to be traded.

The CFTC also may propose granting Wall Street firms and large swaps users three months to comply with margin requirements for non-cleared swaps. Dodd-Frank gave the CFTC authority to write margin rules for non-bank dealers and major swap participants. The agency proposed those rules on April 12.

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