CFTC Proposes “Phased Compliance Program” for Offshore Swaps

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Similar to an on again, off again romance, the CFTC’s rules regarding registration of offshore swap transactions and participants is on again.

Back in late June, the Commission had scheduled a “round table” discussion with market makers to discuss proposed new rules.    But the meeting ended at the eleventh hour as an internal debate over the rulemaking heated up.   Now, it has been widely reported that the CFTC has finally agreed to support a draft proposal to regulate overseas derivatives trading.

Finally, the commodities watchdog voted last week to propose a “phased compliance program” regarding certain swaps transactions that applies to non-U.S.  swap dealers and participants, U.S.swap dealers and participants, and foreign branches.

And after all this delay, the commission finally released for public comments a rule that zeros in on “entity-level requirements” and “transaction-level requirements.”

The proposed rule will become effective on the registration deadline date of swap dealers and major swap participants. That deadline, in turn, will expire 12 months following the publication of the proposal for offshore dealers and participants and for major swap participants on January 1, 2013.

In sum, the rule will apply not only to banks in the United States, but also to American banks that have foreign units.    It will also affect foreign banks that conduct significant derivatives trading in the U.S.   Finally, the rules also impose capital standards and other new oversight measures.

The internal power struggle was attributed in part to the political makeup of the Commission.  However, the disagreement came to an end after JP Morgan’s multi-billion trading loss in synthetic credit swaps in London served as a reminder of reality of complex modern finance.

The proposal now enters a public comment period, after which the agency will vote to complete the plan.

 (Kyle Colona contributed to this story)

Anna Timone (195 Posts)


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