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Swap Dealers May Get Until January to Complete CFTC Registration

Goldman Sachs Group Inc., JPMorgan Chase & Co. and other firms may have until January to register swap-dealing units subject to the highest collateral and conduct standards under U.S. efforts to cut risk in the $648 trillion market.

The Commodity Futures Trading Commission set in motion a series of Dodd-Frank Act rules this week when it published a regulation effective Oct. 12 determining when trades will be considered swaps. Under a separate CFTC timetable, dealers may get until at least January to register.

“You don’t start counting your dealer positions until Oct. 12,” Andrea S. Kramer, a Chicago-based partner and head of the financial products, trading and derivatives group at law firm McDermott Will & Emery LLP, said yesterday in a telephone interview. “It would make no sense to apply the rules on the same day you start counting dealer positions.”

Steven Adamske, the CFTC’s spokesman, declined to comment.

Societe Generale SA, France’s second-largest bank, and lobby groups representing U.S. and international financial institutions have pressed the CFTC to delay registration of swap-dealing units because its Dodd-Frank rulemaking hasn’t been completed. The main U.S. derivatives regulator is taking comments on a proposal for how the rules will apply to foreign-based banks and units of U.S. banks operating overseas.

Prudence Questioned

“Our board is concerned that it may not be prudent to expose SG to new and extensive regulatory oversight if the extent of the oversight, and all applicable rules, are not known,” Laura Schisgall, general counsel for Societe Generale’s corporate and investment banking unit, and Mark Kaplan, the unit’s chief operating officer, said in an Aug. 8 letter.

Bank of America Corp., Citigroup Inc. and JPMorgan have also urged the CFTC to change its guidance.

“The CFTC could be clearer in outlining deadlines and when exceptions are available,” Donald N. Lamson, Washington-based counsel at Shearman & Sterling LLP, said today in a telephone interview.

The agency estimated that 125 firms will register as swap dealers, which will face the highest standards for collateral, capital and conduct when trading with pension funds and cities. Dodd-Frank, the regulatory overhaul enacted in response to the 2008 credit crisis, includes provisions meant to reduce market risk after largely unregulated trades helped fuel a collapse that forced a U.S. bailout of American International Group Inc.

Footnotes and details in a CFTC regulation published May 23 laid out a timeline for when and how firms must determine if they meet the swap-dealer definition. Companies must first determine whether they do at least $8 billion in aggregate gross notional swap-dealing business with counterparties.

They must begin to aggregate trades starting on Oct. 12, when the swap-definition rule takes effect. The firms then get two months from the end of the month they cross the $8 billion threshold to register as dealers. That means if a firm crosses the threshold in mid-October, they wouldn’t need to register until January, though they could choose to do so earlier.

Without the ‘roll-in’ period, “entities whose dealing activities surpass the relevant de minimis factors would immediately be in violation of dealer registration requirements,” the CFTC said in final swap-dealer definitions released with the Securities and Exchange Commission. The extra time was needed to avoid “undue market disruptions,” the agencies said.

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