Global regulators are nearing consensus on collateral standards in swaps rules that may allow the U.S. to eventually defer to oversight by other countries, said Commodity Futures Trading Commission Chairman Gary Gensler.
European and U.S. regulators are working to complete common collateral standards that would apply to direct swaps between buyers and sellers in an effort to prevent traders from exploiting differences in regulations, Gensler said at the International Swaps and Derivatives Association Inc.’s annual meeting in Chicago. Goldman Sachs Group Inc. (GS:US), JPMorgan Chase & Co. (JPM:US) and other U.S. banks have told regulators that differences could hurt their ability to compete with overseas rivals.
“I think it’s achievable that we’ll be on the same page down to the granular level,” said Gensler, who met with regulators from nine jurisdictions on global swaps rules yesterday in Toronto. Standards for collateral, are the most important to set to reduce regulatory arbitrage possibilities, he said.
The CFTC is required under the 2010 Dodd-Frank Act to write rules for the swaps market after largely unregulated trades helped fuel the 2008 credit crisis. The law seeks to reduce risk and increase transparency by having most swaps guaranteed by clearinghouses and traded on exchanges or other platforms.
The CFTC plans to propose guidelines that would allow substituted compliance in overseas jurisdictions to account for the aims of Dodd-Frank, Gensler said.
If an overseas jurisdiction doesn’t have a comparable regulation, the CFTC wouldn’t allow substituted compliance, Gensler said. “If your question is, ‘Can two U.S. parties go to some jurisdiction that doesn’t have an execution requirement to skirt around the law,’ then the answer would be no -- until you find good lawyers to skirt around it,” he said.
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