CFTC to Delay Dodd-Frank Swap Rules

(September 8, 2011) — The Commodity Futures Trading Commission (CFTC) has delayed some votes on Dodd-Frank rules for the $600 trillion derivatives market until 2012.

“The realities of this schedule will push the clearing and trading mandate to approximately the third quarter of 2012,” Scott O’Malia, Republican commissioner, said Thursday.

CFTC Chairman Gary Gensler added that several major new rules for the over-the-counter derivatives market will include rules on how much cash companies need to set aside to guard against losses on derivatives bets. The delay marks the second time that the agency has needed additional time to finalize rules to reduce risk and heighten transparency in the swaps market. In June, the agency said it would miss deadlines to finalize several new derivatives rules.

In April, as part of the Dodd-Frank law, financial regulators approved a 300-page proposal to define a new swaps plan to explain which agency — the Securities and Exchange Commission or the Commodity Futures Trading Commission — will regulate what types of transactions. The proposals provided the market with increased clarity, as regulators have faced scrutiny and mounting criticism for not acting on the swaps definitions rule sooner.

Under the proposals — aimed at limiting risk and boosting transparency in the global swaps market — swaps include foreign exchange swaps and forwards, foreign currency options, commodity options, cross-currency swaps, and forward rate agreements. An exemption would apply to certain insurance products, consumer and commercial transactions.

President Obama signed the Dodd-Frank financial regulation bill last July, giving the CFTC and SEC oversight of the OTC derivatives market while forcing most swaps to be cleared on a regulated exchange. Obama’s signature marked a legislative push that has become increasingly aggressive since the 2008 financial crisis pummeled the US economy.