CFTC Agrees to Delay Dodd-Frank Derivatives Rules

WASHINGTON — The Commodity Futures Trading Commission said Tuesday it would delay implementing certain provisions of the Dodd-Frank Act set to take effect next month.

The CFTC and Securities and Exchange Commission have been criticized by banks and lawmakers for rushing the rulemaking process, and have acknowledged that they likely won't be able to finish certain rules by the July 16 deadline. On Tuesday, the CFTC said it would exempt market participants from some Dodd-Frank provisions until the rules are finalized, or until Dec. 31, whichever is earlier.

"Six months will provide the commission with the opportunity to re-examine the status of final rulemaking in light of the changed regulatory landscape at the time," Chairman Gary Gensler said. "It would allow us, if appropriate at the time, to tailor relief from certain provisions of the Dodd-Frank Act at the end of the year."

Gensler denied it was a delay, but instead said it was giving more time for the agency to complete the rulemaking process.

The move follows an announcement last Friday from the Securities and Exchange Commission that it plans to provide guidance on which provisions actually take effect on July 16, and possibly provide temporary relief from those provisions until it can finalize rules.

Commissioner Scott D. O'Malia said the proposal, while appropriate right now, may "only serve to further confuse and frustrate the markets and market participants."

The proposal would exempt people or institutions from complying with provisions relating to or referencing terms such as "swaps," "swap dealers," or "major swap participants," because it has not yet defined them. It would also exempt certain transactions in exempt or excluded commodities — such as financial or energy commodities — from provisions of Commodity Exchange Act that were overturned by Dodd-Frank.

In a statement Tuesday afternoon, the Securities Industry and Financial Markets Association said it "welcomes the CFTC's recognition that the looming July 16th deadline presents a serious problem and raises questions of legal certainty around swap transactions absent the completion of the rulemaking process. We will review the details as soon as they are released to determine if today's action sufficiently addresses the question of legal certainty for existing transactions and those entered into before final rules are effective."

A bill that would delay the new derivatives rules for 18 months has also been gathering steam in the House. It was approved by the House Agriculture Committee and Financial Services Committee last month.

The legislation has traction in part because of an inspector general report that criticized the CFTC's haste in implementing the derivatives requirements. The inspector general said the agency had not properly considered the rules' costs and benefits.

The CFTC and SEC also announced they will hold a joint roundtable discussion Thursday on the proposed definitions of the terms "swap dealer," "security-based swap dealer," "major swap participant," and "major security-based swap participant."

It will focus on general parameters of dealer activity, application of the dealer definitions among different types of asset classes, application of the de minimis exception from the definitions, and adequacy of the proposed "major participant" test, according to a press release.

The discussion will be open to the public, and will be held in the conference center in the CFTC's headquarters from 9 a.m. to 3:45 p.m. The agencies are also seeking additional comments, which may be submitted online.

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