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UPDATE 1-US regulators seek more comment on swap margin rules
September 26, 2012 / 8:36 PM / 5 years ago

UPDATE 1-US regulators seek more comment on swap margin rules

By Sarah N. Lynch and Emily Stephenson

WASHINGTON, Sept 26 (Reuters) - U.S. banking regulators have further delayed rules for swap dealers to hold more capital and collateral when trading in riskier over-the-counter derivatives to allow consideration of an international paper released in July.

The Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp and two other finance regulators said on Wednesday they would give market participants until Nov. 26 to make comments on the global regulators’ proposal.

“The agencies believe it is appropriate to reopen the comment period for the proposed margin rule in order to give interested persons additional time to analyze the proposed margin rule in light of the consultative document,” the U.S. regulators said in a statement.

The proposed rules are a key pillar of the 2010 Dodd-Frank Wall Street reform law designed to bring more transparency to the nearly $650 trillion over-the-counter derivatives market.

The rules are intended to boost oversight and limit risk in the swaps market, which played a significant role in the 2007-2009 financial crisis. Lack of awareness of swaps exposure at failed investment firm Lehman Brothers and insurer American International Group aggravated the crisis.

The five agencies’ proposed rules would require swap dealers such as Goldman Sachs and Morgan Stanley to put up collateral and hold more capital against swaps that have not been sent through clearinghouses, which guarantee trades.

The three banking agencies, plus the Federal Housing Finance Agency and the Farm Credit Administration, first proposed swaps rules in the spring of 2011 and the initial comment period closed in July of last year.

Coordinating with international regulators on new rules so that U.S. firms are not at a disadvantage has been one of the most contentious issues as regulators hash out requirements for the swaps market.

Federal Reserve Chairman Ben Bernanke has said that regulators could have to rethink derivatives rules if international regulators do not reach an agreement on margin requirements.

The proposal released this summer by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions suggested a standardized margin requirement of between 2 and 15 percent of the size of the trade, depending on the type of asset, as well as its maturity.

Industry members have until Friday to comment on that report.

Another U.S. regulator, the Commodity Futures Trading Commission, already gave industry more time for comments on its version of swaps rules.

Industry groups have complained that swaps rules from the CFTC, which regulates derivatives, differed from the proposal by the Fed, FDIC, OCC, FHFA and FCA.

The other U.S. agency responsible for crafting swaps rules, the Securities and Exchange Commission, has not yet issued a proposal.

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