Pressure mounts on CFTC to extend cross-border exemption

A group of six US sell-side associations has petitioned the Commodity Futures Trading Commission to extend a cross border exemption for swaps rules that expires next month.

A group of six US sell-side associations has petitioned the Commodity Futures Trading Commission (CFTC) to extend a cross border exemption for swaps rules that expires next month.

The group includes the International Swaps and Derivatives Association (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) and last week sent a letter to CFTC chairman Gary Gensler, calling for a six-month extension to the exemption, which expires on 12 July.

The 6 June letter joins a similar plea from the European Commission to extend the exemption until greater clarity is developed at the global level, through international regulation bodies such as the International Organization of Securities Commissions (IOSCO). The European Commission’s letter warned a lack of international guidance would lead to “operational uncertainty” in the US$630 trillion swaps market.

Gensler will meet with European regulators in Montreal on 20 June to discuss the issues underpinning divergent cross-border rules. The CFTC chairman also faces growing opposition within the Commission, with three commissioners publicly questioning the logic behind implementing the rules next month ahead of greater international clarity.

“The premature replacement of the Exemptive Order with final cross-border guidance, could jeopardise the productive and cooperative efforts underway towards meeting G-20 commitments on an international basis,” the letter read.

One such effort to develop harmonised rules includes a report due in September from the OTC Derivatives Regulators Group, of which the CFTC, European Commission and ESMA are members.

The letter also stated an exemption would help the CFTC and market participants digest recent Securities and Exchange Commission (SEC) rules on the cross-border elements of securities-based swaps released in May for a three-month consultation period.

Extending the exemption would thus boost coordination efforts with the SEC in line with US Congress’ initial aims in splitting Title VII of the Dodd-Frank Act between the two bodies, which called for the CFTC to consult and coordinate “to the extent possible” with the SEC.

Asides from ISDA and SIFMA, other signatories to the letter were the American Bankers Association, ABA Securities Association, Futures Industry Association and the Institute of International Bankers.

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