Gensler Rejects Cross-Border Compromise as Wall Street Boost

U.S. Commodity Futures Trading Commission Chairman Gary Gensler insisted the agency push through its cross-border derivatives rules next month, a goal he said would be delayed by a fellow Democrat’s proposal.

The commission should finish its cross-border guidance by July 12, when an exemption from the proposal expires, Gensler told senators at a hearing yesterday. His comments came after Commissioner Mark Wetjen said earlier in London that the CFTC should adopt “interim final guidance” that could be amended based on additional industry and public feedback.

“It means delay, and I think we’ve had a year to do this,” Gensler told reporters after testifying before a Senate Appropriations subcommittee in Washington. “The American public should hold us to task if we can’t get this done by July 12. They should say, ‘Why does it take so long and are we doing too much to accommodate Wall Street?’”

The CFTC and the Securities and Exchange Commission are writing rules to regulate the $633 trillion global swaps market under the 2010 Dodd-Frank Act, with the CFTC given authority over most of the activity. Republican lawmakers and regulators have said the CFTC should try to harmonize its rules with those written by overseas regulators and the SEC.

Jill E. Sommers and Scott O’Malia, the two Republicans on the five-member CFTC, have said they want to delay final action on cross-border guidance. Republican senators at yesterday’s hearing also pressed Gensler to take more time. The guidance document explains how the CFTC’s derivatives rules apply to foreign banks and affiliates of U.S. banks and hedge funds.

‘Absolutely Essential’

In his London speech, Wetjen said it is “absolutely essential” that the interim final guidance give the marketplace time to adjust.

“We must consider carefully whether stepping in front of the regulatory process discourages the very financial reforms that we are trying to implement, which could in turn needlessly complicate the commission’s efforts to contain systemic risk and protect the U.S. taxpayer,” he said.

Senator Mike Johanns, a Nebraska Republican, asked Gensler at yesterday’s hearing on the CFTC and SEC budgets whether the marketplace is truly ready for the July 12 deadline.

“Should we follow the advice of one of your colleagues on the commission who says let’s take a deep breath here and gather some more input before we drop the hammer on this?” Johanns asked in reference to Wetjen’s comments.

Gensler said market participants, including big banks and other swaps dealers, are prepared to comply with the CFTC’s rules. The rules are needed to police derivatives trades that are often conducted overseas but guaranteed by a U.S.-based parent company, he said.

‘Offshore Jurisdictions’

“It is not a surprise that Wall Street and yes, the financial firms overseas, will say this is so confusing, we need more time,” Gensler said. “What they are really saying behind that is don’t apply these common-sense reforms when we operate in our offshore jurisdictions.”

Sommers released a statement today defending Wetjen’s position and criticizing Gensler’s contention that efforts to delay rules are meant to undermine Dodd-Frank, the regulatory overhaul enacted in response to the 2008 credit crisis.

“No one has ever accused Gary Gensler of being reasonable,” Sommers said in her statement. “I may not totally agree with it, but Commissioner Wetjen has put a reasonable proposal on the table that would achieve multiple goals. He understands the importance of working in good faith with other global regulators.”

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