Bloomberg News

U.S. Swaps Regulators to Seek Comment on Overseas Reach

August 01, 2011

(Updates with international coordination comments starting in fifth paragraph.)

Aug. 1 (Bloomberg) -- U.S. financial regulators are planning to seek comment on when Dodd-Frank Act rules for the $601 trillion swaps market apply to international transactions or firms conducting business overseas.

The Securities and Exchange Commission plans to propose a rule, while Gary Gensler, chairman of the Commodity Futures Trading Commission, said the agency will publish information about the potential reach of the law and seek response from banks, energy firms and other market participants.

“We will seek further public comment at the CFTC about these international issues,” Gensler said at a meeting today in Washington about the extraterritorial impact of the law.

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co., among other firms, said in a June 29 letter that proposed Dodd-Frank regulations threaten to “damage the competitiveness” of the foreign-based business of U.S. banks compared with their overseas rivals. Dodd-Frank, enacted last July, aims to reduce risk and boost transparency in the swaps market after largely unregulated transactions helped fuel the 2008 credit crisis.

U.S. regulators should seek to coordinate their rules and timetables as much as possible with foreign regulators, representatives of BlackRock Inc., the world biggest asset manager, and MF Global Holdings Ltd. said at the meeting.

‘Deep and Liquid’

Without that harmonization, the “deep and liquid” derivatives markets may become fragmented, said Supurna Vedbrat, managing director at BlackRock. “That will impact competitive pricing that clients receive today,” he said.

If the U.S. moves ahead of other countries with a series of new rules, U.S. firms could lose business to overseas competitors, Thomas Riggs III, managing director at Goldman Sachs, said at the meeting.

A time gap may create a period in which “business, client relationships, liquidity, whatever, may flow somewhere else,” he said. “Ultimately when the rest of the world harmonizes with the U.S. approach the question is: Can you get it back?”

--Editors: Lawrence Roberts, Gregory Mott

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


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