U.S. Swaps Cop Plans to Dial Back Global Reach of Its Rules

(Bloomberg) -- The U.S.’s top swaps regulator is planning sweeping changes to how it applies its rules abroad.

Calling the Commodity Futures Trading Commission’s international approach "flawed and over-expansive," Chairman J. Christopher Giancarlo said in a Friday speech that it would begin writing new rules once the U.S.’s partial government shutdown ends. Giancarlo has argued that his agency should give more deference to other countries’ regulations.

"For an agency with perennially restrained funding, the overreach of the CFTC jurisdiction is untenable," Giancarlo said in remarks prepared for a speech at an American Bar Association event. "Worse, the impact of this overreach has contributed to fragmenting global markets into a complex series of ever more shallow pools of trading liquidity that, in a market crisis, may present significant global systemic risk."

Giancarlo, who is likely to leave the agency in the coming months, specifically took issue with the CFTC’s application of its regulations to all global swaps transactions that involve participants deemed "U.S. persons." He said the tag amounted to "scarlet letters" and that global firms avoided financial institutions with that label.

In his Friday speech, Giancarlo also doubled down on his call for overhauling rules governing swap execution facilities, or SEFs, that handle trades in the $532 trillion market.

In November, the CFTC proposed a plan that would scrap requirements that swap buyers get quotes from three dealers before making a purchase and that trading platforms make an order book available to all market participants. The proposal has been criticized by Citadel Securities LLC and other firms.

Giancarlo said in his speech that he’d met with more than a dozen market participants this month and that his agency would take into account feedback and criticism it received. He said that he wanted to extend the comment period on his proposal until March 15.

It’s unclear when the agency could bring up the plan for a final vote. The CFTC could also re-propose a different version of the plan, but such a move would extend the time-frame for passing it. The White House’s nominee to replace Giancarlo, Treasury Department official Heath Tarbert, hasn’t weighed in on the plan.

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