CFTC Expected to Delay Planned Overseas Derivatives Trading Restrictions

BOCA RATON, Fla.-The Commodity Futures Trading Commission is expected to delay planned overseas derivatives trading restrictions relating to a continuing effort to harmonize domestic and international rules.

The CFTC, the main U.S. derivatives regulator, is likely to put off restrictions on derivatives trading in Europe set to go into effect March 24, according to a person familiar with the matter. It was unclear how long the delay would last.

A delay would reflect efforts by the CFTC, under new leadership, to ease tensions with overseas counterparts as global policy makers seek a coordinated set of international rules for derivatives trading. European officials have complained the CFTC moved too aggressively to apply U.S. rules overseas and have pushed for more time to develop their regulations.

Regulators and trading platforms in the United Kingdom recently urged the commission to push back its March 24 deadline, people familiar with the matter said.

At issue is whether U.S. banks operating overseas should have to follow U.S. swaps rules abroad. Under an agreement last month between the CFTC and the European Union's executive arm, U.S. firms could trade swaps on European platforms as long as those systems are governed by rules largely similar to those in the U.S.

As part of that deal, European trading platforms could accept trades from U.S. firms after March 24 only if they certify they follow certain transparency and other rules that mirror the CFTC's. Some London-based trading firms have told CFTC officials they now need more time to comply with that deadline.

No firms have so far filed paperwork with the commission indicating they are regulated like U.S. trading platforms, CFTC Acting Chairman Mark Wetjen said last week. One person familiar with the discussions said the platforms are asking for a delay until July 1.

A CFTC spokesman declined to comment on the possible delay.

Mr. Wetjen, in an interview last week, said he aims to be "accommodating and reasonable" on compliance deadlines if possible. But he stopped short of endorsing a delay for the trading restrictions.

"If you insist on these hard deadlines, and if they're too aggressive, it stands to reason that it will throw firms out of compliance," he said.

Mr. Wetjen said any decision to push back its deadlines would come in response to a formal request from European officials or trading platforms, which it had yet to receive as of last week. He said the agency would only act to ease "legitimate technical or legal challenges" relating to the rules.

"As you'd expect, we are in close contact with the CFTC on a range of issues around cross-border derivatives reform, including on-venue trading," said Lara Joseph, a spokeswoman for the U.K.'s Financial Conduct Authority.

Banks and other firms could take advantage of any delay to divert trading away from some U.S.-based platforms to less regulated systems abroad, said James Cawley, chief executive of Javelin Capital Markets LLC, which operates a New York-based swap-trading platform.

"The longer the CFTC delays, the greater the propensity for regulatory arbitrage and the worse it is for American businesses, whose only fault is they complied with the laws as written and met deadlines," he said.

The likely delay comes amid a period of transition for the CFTC, which is moving from developing swaps rules ushered in as part of the 2010 Dodd-Frank law to implementing and enforcing them.

The commission's composition is also in flux. Senate lawmakers are currently weighing whether to confirm three of President Barack Obama's nominees to serve on the five-member CFTC, including Timothy Massad, a senior Treasury official, tapped to succeed Gary Gensler as chairman. Mr. Gensler stepped down in January.