The U.S. Commodity Futures Trading Commission may vote June 21 to propose guidelines for extending the reach of Dodd-Frank Act rules to overseas swaps trading, according to two people briefed on the matter.
The so-called interpretative guidance is under debate at the top U.S. derivatives regulator and may change before a vote, according to the people, who requested anonymity because the matter isn’t public. Dodd-Frank is designed to reduce risk and increase transparency in the global swaps market after largely unregulated trades helped fuel the 2008 credit crisis.
JPMorgan Chase & Co.’s disclosure last month of at least $2 billion in trading losses on credit derivatives shows the need to extend the law’s reach to overseas trades, CFTC Chairman Gary Gensler said on May 21.
“We’ve had another stark reminder of how trades overseas can quickly reverberate with losses coming back to the United States,” Gensler said in the remarks.
U.S. banks including JPMorgan and Goldman Sachs Group Inc. have said increased oversight of derivatives markets will hurt their ability to compete with foreign-based rivals if the rules are applied to their overseas units.
Imposing Dodd-Frank margin requirements on non-U.S. swaps would “eviscerate our ability to serve clients overseas and cede the global market to foreign competitors,” JPMorgan Associate General Counsel Don Thompson said at a House hearing Feb. 8. “Although this varies from quarter to quarter, we often derive as much as of our revenues from our global operations as from those in the United States,” he said.
Under the guidelines, Dodd-Frank clearing and collateral rules may not apply to trades between overseas affiliates of U.S. firms and foreign-based companies that don’t have a guarantee from another U.S. company, Gensler said last month.
Scott O’Malia, one of two Republicans among the CFTC’s five commissioners, said on May 31 that the guidance should be subjected to cost-benefit analysis and shouldn’t overreach.
“The commission should ensure that its registrants and registered entities remain competitive in global financial markets,” O’Malia said in a speech in New York.