U.S. derivatives regulator proposes more flexible swaps trading rules


The head of the U.S. derivatives watchdog on Thursday said he would like to allow more flexibility in the way swaps are traded while at the same time tightening requirements for reporting of such trades.

Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), said he fully supported swaps regulation introduced following the 2007-09 global financial crisis, but that the rules have had unintended consequences.

His proposals were unveiled as part of a 103-page policy blueprint for revising swaps rules brought into law by the 2010 Dodd-Frank Act.

Dodd-Frank introduced a range of trading, reporting, risk management and capital rules aimed at reducing risk in the U.S. derivatives market after Lehman Brothers fell into bankruptcy in 2008 due to exposures on its massive pile of swaps.

Giancarlo said while the law was sound, the CFTC’s implementation had been flawed in some cases.

Giancarlo, who was appointed chairman last year after having served as a minority commissioner, has for several years argued that the CFTC was wrong to impose an exchange-traded futures model on to the over-the-counter derivatives market.

“Upon becoming chairman, I thought it made sense to do a more comprehensive look at all the reforms, with a clear-eyed view toward what’s worked, and if it’s worked, what issues has it led to, what hasn’t worked as well, and what could we do better,” Giancarlo told reporters.

The CFTC’s swaps trading rules have caused liquidity to fragment globally, pushing price-discovery away from transparent exchange-type platforms, the policy paper argues. This could be fixed by allowing more flexible execution mechanisms.

Giancarlo, whose blueprint drew on new data, industry feedback and academic input from across the political spectrum, said his intention was not to weaken the current rules, but to strike a better balance between security and the vibrancy of the market.

“We’re not undoing it, we’re trying to improve it, we’re trying to optimize it,” he said.

The paper also recommends tightening up swaps data reporting requirements to provide more specific information on trades and their potential risks.

But it does declare Dodd-Frank’s mandate to push trades through clearing houses a big success, with many more trades now guaranteed in case either counterparty defaults.

Many of the changes outlined in Giancarlo’s blueprint would have to be voted on by the commission or, in some cases, taken up by the Federal Reserve or international regulators.




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