U.S. delays oversight of derivatives overseas
WASHINGTON — A policy allowing a U.S. agency to regulate derivatives trading overseas to help reduce risks to the global financial system will be delayed under a vote Friday.
The Commodity Futures Trading Commission voted 3-1 to stagger the effective dates for the policy. The delay marks a middle ground between Chairman Gary Gensler, who wanted to extend the CFTC's regulation to overseas markets now, and Wall Street banks, which opposed extending its reach.
The Obama administration favored a delay to allow foreign regulators to finalize their own rules for derivatives oversight.
A derivative is an investment that's based on the value of an underlying asset, such as oil or corn or dollars. Bad bets on risky derivatives, and lax regulation of them, were a leading cause of the 2008 financial crisis.
The CFTC policy applies new rules governing the $700 trillion derivatives market to U.S. banks' foreign affiliates that trade derivatives and to U.S. trading operations of foreign banks.
The agency's new oversight rules were mandated by the 2010 financial overhaul law. One requires banks that trade derivatives to put up money to cover potential losses. Another would require most derivatives to be traded in clearinghouses to make prices more transparent.
Under Friday's vote, the new rules would be phased in overseas starting in September.
The CFTC commissioners also agreed to have European regulators monitor derivatives trading in their countries if their oversight rules closely resemble the CFTC's. By March, European banks with trading operations in the United States will have to meet the requirements.
On Thursday, the CFTC and the European Commission announced an agreement to coordinate their derivatives rules.
“What happens in one nation impacts another,” Commissioner Bart Chilton said before the vote. “Risk travels around the globe with a click of the mouse.”
Proponents of the wider reach for the CFTC say regulations overseas tend to be weaker and that stricter supervision is needed to reduce the risk to the broader financial system.
Banks and other opponents counter that the CFTC's rules will make it harder for U.S. firms to remain competitive in some foreign markets.