CFTC Details Swaps Regulations

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According to industry sources, CFTC Chairman Gary Gensler offered a hint of the new regulatory plan for implementing provisions of the newly enacted Dodd-Frank financial reform law.   

The new law gives federal regulators oversight of swaps markets, the CFTC committee will develop details that will affect the way banks and financial institutions conduct business.     

More specifically, the committee will discuss whether to allow counterparties to “swap” exposures to certain kinds of risks, such as changes to interest rates, commodity prices and borrowers’ credit-worthiness.     In addition, the CFTC is working on defining terms such as “swap dealer” and “major swap participant.”

This regulation will affect global and regional banks that underwrite many swap contracts, as well as affiliates of those banks.  The financial overhaul requires commercial banks to shut down or spin off operations that handle commodities, stocks and most credit-default swaps.

Mr. Gensler estimated approximately 20-30 new entities will register as swap-execution facilities or designated contract markets, in addition to the 16 futures exchanges already regulated.     

The agency is also developing guidelines that would aim to lower systemic risk in the swaps market and, by extension, in markets for other derivatives and asset classes. Often, counterparties to swap contracts take out futures positions to mitigate the possibility of losses.

Although, the Dodd-Frank law requires standardized swaps be cleared or guaranteed in case of default, by one side, through central clearinghouses, the unclear nature of many factors make it harder for regulators to measure the seriousness of the 2008 financial crisis.   In addition, it continues to keep investors in the dark about companies’ true risk profile.   

As the result, Mr. Gensler estimated that the number of registered derivatives-clearing organizations will increase from 14 to around 20

Anna Timone (195 Posts)


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