Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission (CFTC), stated that banks may be allowing hedge funds avoid rules meant to reduce market risks by routing trades through overseas offices. The top U.S. derivatives regulator made the announcement in a testimony prepared for a hearing on the Dodd-Frank Act, Bloomberg reports.
In a statement for the Senate Banking Committee hearing, Gensler said that overseas affiliates of banks may be conducting hedge fund trades that are organized offshore – even though their principal place of business is located in the United States.The efforts made by the banks may be used to avoid rules that go into effect in March. The rules are focused on requiring trades to be guaranteed at central clearinghouses.
Gensler also said in a prepared remark, “The CFTC is working to ensure that this idea does not prevail and develop into a practice that leaves the American public at risk.” The chairman also indicated that the CFTC will soon complete regulations exempting inter-company trades from clearing requirements. A group made up of international regulators expect to finish a set of rules governing collateral for trades that aren’t settled in clearing houses. The rules are expected to be finished in the second half of the year.
In efforts to encourage consistency in rule making, Gensler said in a statement to MNI, that the CFTC is working closely with regulators, both domestic and foreign, on global approaches to margin requirements for uncleared swaps: “I would anticipate that the CFTC, in consultation with European regulators, would take up a final margin rules, as well as related rules on capital, in the second half of this year,” he said.
Gensler also stated that regulators intend to hold roundtable meetings in London on February 20th and at the CFTC on February 26 in an effort to revamp the London interbank offered rate. Many banks, including Barclays PLC, UBS AG, and the Royal Bank of Scotland Group PLC have settled with regulators and paid fines in a global probe into interest-rate rigging.