Wall Street banks are close to winning a further delay of a U.S. policy that clamps down on their overseas derivatives trades, according to two people with knowledge of the matter.
The Commodity Futures Trading Commission is probably going to postpone subjecting transactions set up in the U.S., but held in overseas divisions, to Dodd-Frank Act trading regulations, said the people, who asked not to be named because the deliberations are private. The regulator is weighing how long the delay should be, the people said.
Former CFTC Chairman Gary Gensler first outlined the increased oversight in 2013 following concerns that Wall Street was booking swaps overseas to dodge rules meant to bolster competition and increase transparency. Since then, the largest banks have fought to prevent the policy from taking effect.
Industry lobbying groups representing JPMorgan Chase & Co., Goldman Sachs Group Inc. and other firms unsuccessfully sued the agency to overturn additional regulation for cross-border trades, arguing that the CFTC was overstepping its authority.
The policy, which is currently set to take effect on Sept. 30, has been delayed four times while the industry and CFTC squared off in the courtroom. Within the agency, commissioners have questioned the need for it, with both Republicans and Democrats arguing that the extension of U.S. trading rules to such overseas transactions may be inappropriate.
The agency is considering a one-year delay, the people said. The decision hasn’t been finalized and the agency could still change its approach and implement the policy at the end of next month.
“We haven’t quite decided what we’ll do,” CFTC Chairman Timothy Massad said last month at an event in Washington. He said at the time the agency was still debating which rules should apply for trades arranged, negotiated and executed in the U.S. but held overseas.
Steve Adamske, a spokesman for the CFTC, declined to comment.
The question of how to apply the Dodd-Frank rules overseas has been among the most contentious battles between the financial industry and the CFTC, whose power to regulate swaps was expanded by Dodd-Frank. Largely unregulated deals helped fuel the 2008 credit crisis and led to the U.S. rescue of American International Group Inc., the New York-based insurer that traded credit-default swaps out of its London offices.
Banks have argued that U.S. rules may hurt their ability to compete with foreign-based rivals since overseas jurisdictions have yet to fully put in place new oversight for the derivatives market.