SEC re-proposes some key rules for swap dealers on U.S. soil
By Sarah N. Lynch
WASHINGTON (Reuters) - U.S. regulators on Wednesday re-proposed some rules targeting American and foreign swap dealers that run trading desks on U.S. soil, in a move to clarify which cross-border trades will be covered by certain U.S. regulations.
The Securities and Exchange Commission first floated the plan in 2013, but is now revising its draft in an effort to better tailor the rules to the highly illiquid derivatives markets it oversees.
The plan targets primarily large banks like Goldman Sachs Group Inc and Barclays Plc , which run derivatives trading desks on American soil.
In particular, it focuses on trades from these U.S.-based desks that are conducted with foreign firms, such as a Cayman Island hedge fund, and then booked overseas with the banks' foreign affiliates.
Some critics have said that arranging such trades on U.S. soil while booking them abroad could create a loophole for banks to get around the rules. Others, meanwhile, say putting these trades under U.S. oversight is regulatory overreach.
Under the plan, transactions between non-U.S. companies that use U.S. personnel to arrange, negotiate or execute swaps trades will be covered under several key SEC rules, but exempted from others such as mandatory clearing and trade execution rules.
The 2010 Dodd-Frank Wall Street reform law requires dealers to register with the SEC and the Commodity Futures Trading Commission (CFTC), with the SEC only overseeing a small subset of the market involving derivatives whose values are pegged to securities such as credit-default or equity swaps.
There has been a brewing controversy over whether foreign banks on U.S. soil that trade with other overseas clients should be covered by American regulations.
The CFTC, which oversees the vast bulk of the market, faced a legal challenge from the industry after it tried to cast a broader net and cover such transactions.
A court upheld the CFTC's powers to impose the rules overseas but sent some of the measures back to the CFTC with instructions to do a better job weighing their costs and benefits on the market.
Under the SEC's plan, the trades in question will be subject to business conduct standard rules and public trading data dissemination requirements.
The trades will also likely trigger banks to need to register as dealers with the SEC, a status that will also require them to post margin and set aside additional capital.
SEC Democratic Commissioner Luis Aguilar said he thinks that the plan will "prevent restructuring charades" to avoid SEC rules.
(Reporting by Sarah N. Lynch; Editing by Jonathan Oatis and David Gregorio)
