U.S. Swaps Cop Apologizes for International Rules Overreach

(Bloomberg) -- The top U.S. swaps watchdog is apologizing for what he says was past overreach by his agency in dealing with international derivatives oversight and calling for more deference to rules governing trading in other countries.

The Commodity Futures Trading Commission’s approach to post-crisis rule-making has at times “alienated” foreign regulators, Chairman J. Christopher Giancarlo said Tuesday in comments prepared for a speech in London. The U.S. agency should respect rules adopted abroad as long as they are comparable, he said, while also asserting his agency’s “exclusive” right to make rules for its markets.

“The CFTC should move to a flexible, outcomes-based approach,” Giancarlo said, adding that his agency “and its global counterparts should recommit themselves to working together to implement a deference process.”

Giancarlo’s comments come as regulators on both sides of the Atlantic spar over European Union plans for sweeping new powers over U.S. and U.K. swaps clearinghouses. He and other CFTC members have expressed concern that EU changes could unduly burden clearinghouses like the one run by CME Group Inc. While he didn’t address the issue in his prepared remarks, Giancarlo called the proposal an “expansive extraterritorial reach” in an article published in the Eurofi Magazine this week.

Hurting Farmers

The CFTC chairman has been working over the past year to persuade the EU to back off its call for additional oversight. He has written opinion columns, given testimony and traveled across Europe arguing that the changes could hurt U.S. farmers by driving up the cost of using derivatives. Some European regulators say the new powers, which are still being negotiated, are needed to adequately police the industry.

Under the plan announced by Giancarlo on Tuesday, swaps clearinghouses outside the U.S. would be allowed to clear for American customers in some cases without having to register with the CFTC. The exemption would only apply if the swaps don’t pose substantial risk to the U.S. financial system.

The CFTC chairman also said he would like to see his agency exempt non-U.S. trading venues from having to register as swaps execution facilities if they are judged comparable. He also called for more leeway in how foreign firms count swaps transactions with other non-U.S. entities toward the CFTC’s swaps dealer registration requirement.

Walt Lukken, president and chief executive officer of the Futures Industry Association, said his organization welcomed Giancarlo’s call to reconsider the CFTC cross-border approach, particularly as it relates to access to clearing."

Giancarlo said he plans to release a white paper with more details and will ask the CFTC’s staff to develop rules for international application of swaps rules required by the Dodd-Frank Act. Giancarlo has said he supports the 2010 law, but he’s criticized how the CFTC wrote many of its rules.

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