According to an article published today in the Wall Street Journal:
"Banks, brokers and investors are warning of potential turmoil in a major part of the derivatives market on Oct. 2, when new U.S. rules kick in governing how instruments known as swaps are traded.
"Banks, brokers and investors are warning of potential turmoil in a major part of the derivatives market on Oct. 2, when new U.S. rules kick in governing how instruments known as swaps are traded.
Swaps are derivatives, traditionally not traded on exchanges, which corporations and financial institutions use to protect against or speculate on changes in everything from fuel costs to interest rates. The Bank for International Settlements estimates that there are $633 trillion of swaps outstanding.
The new rules, which were mandated as part of the Dodd-Frank financial regulation law and are being implemented by U.S. regulators, are meant to make the swaps market more transparent and prevent a repeat of the 2008 financial crisis when the market was thrown into upheaval. Under the new rules, most swaps must be transacted through registered venues, routed through central clearing houses and reported to data warehouses known as trade repositories.
Industry officials are waging a vigorous last-ditch lobbying campaign aimed at persuading the Commodity Futures Trading Commission to delay the rules. They argue that the new standards have been applied too quickly and could throw the market into disarray.
The time frame for trading platforms to comply with the rules, and for traders to test new systems, is so tight it could propel trading to lightly regulated jurisdictions and venues that aren't subject to the rules—potentially including those in the European Union, which is lagging behind the U.S. in drafting rules for derivatives.
Many market participants may have to revert to voice trading for a while.
For decades, trading in swaps has been conducted privately. But after the financial crisis, global regulators, backed by the world's 20 economically largest countries, ordered most of the trades onto open platforms and routed to clearinghouses that take fees to guarantee trades. A key goal is to provide regulators with a better view of potential risks to the financial system.
CFTC officials say they could in some circumstances grant waivers for owners of swaps platforms who aren't ready. "There may be some very limited, targeted relief around the go-live date for SEFs," a CFTC spokesman said.
"Market participants would benefit from getting a time-limited extension to allow for a smooth transition to these new execution venues," said Scott O'Malia, one of five CFTC commissioners, in a speech Thursday".
