Overseas SWAPs Trading Opposed by Gensler Approved

Overseas SWAPs Trading Opposed by Gensler Approved

The U.S. Commodity Futures Trading Commission and European regulators today announced they have agreed to ease restrictions on access to the type of electronic trading venues where overseas affiliates of U.S. firms can continue trading SWAPs, The Wall Street Journal is reporting.

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Such a move is viewed as a benefit to those trading SWAPs because it will make it easier for them to circumvent tougher U.S. SWAPs rules.

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If “comparable” rules exist, overseas trading permitted

Although exact details of the rules are not clear, the new rules will allow U.S. firms to trade on European platforms so long as those trading venues are governed by “comparable” rules to those under the 2010 Dodd-Frank law.  “Comparable” being the operable word, as sometimes subtle changes in regulation can result in important differences in regards to transparency on key components and leverage usage.

Gensler aggressively fought against overseas SWAPs trading

Former CFTC Chairman Gary Gensler had aggressively championed strong U.S. regulations oversee SWAP transactions of U.S. firms, a move said to have alienated him from financial insiders among the Obama Administration.

In a July 3 meeting in the White House, “Gensler had argued his plan was vital if the U.S. hoped to seize meaningful authority over financial instruments that helped push the global economy to the brink in 2008, taking down American International Group Inc (NYSE:AIG) and Lehman Brothers Holdings Inc Plan Trust (OTCMKTS:LEHMQ) and igniting the worst recession since the 1930s,” according to a Bloomberg report.  The report said U.S. Treasury Secretary Jacob Lew insisted that Gensler “coordinate better” with the Securities and Exchange Commission, which was interpreted by some as an order for Gensler to succumb to the prevailing lighter regulatory touch said to have been advocated by then newly confirmed SEC Chairwoman Mary Jo White, who was also present in the meeting. “Gensler, who was deep into negotiations with his European counterparts, was surprised by Lew’s demand,” the report said. “He’d been hearing the same request from lobbyists seeking to slow the process, and he told the Treasury chief it felt like his adversary bankers were in the room,” the report said, quoting people in the meeting.

Gensler had said he put up such stiff resistance to the overseas trading permissions because he feared a repeat of the 2008 financial crisis, when several firms had executed over the counter trades overseas.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com
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