LONDON Derivatives regulators from major trading centres promised on Tuesday to minimise cross-border clashes over their new rules to rein in risks in the $640 trillion sector and give industry extra time to adjust.
World leaders agreed in 2009 to increase transparency by requiring swaps contracts to be recorded, cleared and traded on electronic platforms by the end of this month, but not all countries are ready.
The leaders decided on action because most interest rate, credit default, commodity and other types of swaps are traded privately among 15 or so top banks like Goldman Sachs (GS.N), Deutsche Bank (DBKGn.DE) and HSBC (HSBA.L).
This makes it hard for regulators to get a full picture when things go wrong, as with the collapse of U.S. bank Lehman Brothers in 2008.
The group of regulators from the EU, Australia, Hong Kong, Brazil, Singapore, Japan, United States, Canada and Switzerland, met in New York last week. They mapped out, in a statement released on Tuesday, how they intend to minimise the application of inconsistent and duplicative rules.
Banks fear having to comply with different rules and there are already signs some Asian customers are avoiding U.S. banks.
The regulators said in the statement they would consult each other before deciding if a swap must be cleared, a process backed by a default fund to minimise fallout from any default.
They pledged to recognise each other's rules and agree on common phased introductions of the reforms.
"We will consider providing appropriate transitional implementation periods for entitities in jurisdictions that are implementing comparable regulations, supervision and comprehensive oversight," the statement said.
The regulators will meet in Brussels early next year to look at "options to address identified conflicts, inconsistencies and duplicative rules".
They will also tell each other in January when they intend to start applying the new rules and the transition periods markets will be given.
As part of the same process of averting duplication Britain, France, Japan and the European Union in October called on the United States regulator, the Commodity Futures Trading Commission (CFTC), to limit the cross-border reach of some of its new derivatives rules.
The International Swaps and Derivatives Association (ISDA), the main industry body for the sector, said on Tuesday it welcomed efforts to align supervisory approaches.
"As the regulatory statement suggests, considerable further progress needs to be made, and we look forward to engaging constructively with policymakers towards that end," ISDA said.
One derivatives industry official, speaking on condition of anonymity, said the statement failed to say what would happen if a country decides to make clearing mandatory while regulators elsewhere object.
The official said the regulators also conceded that "national authorities would still have ultimate responsibility and authority to protect against all sources of risk to their markets".
This is seen as offering reassurance to the CFTC, which faces a Congress leery of the United States being bound by foreign rules.
(Reporting by Huw Jones; Editing by Anthony Barker)