Last-minute exemptions and delays for new US swaps trading rules have given large buy-side firms a brief respite on implementation and will help them avoid burdensome compliance issues.
The Commodity Futures Trading Commission (CFTC) has delayed reporting of swaps until 31 December as part of a raft of last-minute amends published by the US watchdog last Wednesday.
The changes come as the CFTC re-assesses categories of swaps dealers and swaps participants, which would have included some asset managers in the same group as banks, creating uneven reporting and compliance issues.
As part of the changes, which were announced in no-action letters from the CFTC, swaps traded by firms exchanging swaps exposure for futures products at the Chicago Mercantile Exchange (CME), which runs the world’s largest futures exchange, will not count toward swap dealer category registration until 31 December, to avoid sudden shifts in the market. The CME is due to launch interest rate swap futures in November.
Atlanta-based IntercontinentalExchange (ICE) is also allowing members to convert commodity swaps into futures via its futures clearing house, as a way of avoiding swap dealer registration.
Furthermore, cross-border entities, such as foreign branches of US banks, will not have to calculate their swaps activity until the end of the year.
The CFTC has also let firms with a foreign-exchange derivatives business over the US$8 billion swap dealer threshold delay registration until 2013.
Mark Israel, vice president of the business consulting and investment management practice at services provider Sapient Global Markets, said this last-minute clarity should have been built-into the original CFTC rules.
“The regulators are going to look at how this impacts the overall business in order to better define these categories and adjust them to not catch firms who don’t need to be as regulated as others,” Israel said.
For buy-side firms in particular, the wave of exemptions and delays will ease concerns that some asset management companies would be forced to dramatically alter reporting and compliance on swaps trading.
“There’s a handful of asset management firms that are looking to reduce swaps exposure and move it to futures to avoid getting caught up in these categories that demand extra regulation, but that activity is more applicable to energy firms,” Israel said, adding that the delay given to foreign affiliates of US banks would be of particular interest to the buy-side.
“Some buy-side firms are considering changing their approach to clearing funds domiciled in the US to reduce complexity as it impacts on best execution, but cross-border regulatory requirements remain unclear,” Israel said.
The CFTC’s original June proposal caused confusion among regulators outside of the US, unsure where overlapping regulation would cause reporting issues for companies with overseas operations.
The concerns were formally lodged with the CFTC in letters from regulators including the UK Financial Services Authority, the European Commission, the European Securities and Markets Authority, the Financial Services Agency in Japan, the Bank of France and the Swiss Financial Market Supervisory Authority.
The CFTC rules are part of the Dodd-Frank implementation, which focus in part on creating further transparency within US over-the-counter swaps trading in light of the 2008 financial crisis.
A total of 18 no-action letters have been released by the CFTC delaying or excluding reporting duties for certain market participants within the new guidelines, which were due to come into force last Friday.