The Commodity Futures Trading Commission reaches out to derivatives traders this week to calm their fears about the agency’s failure to finalize dozens of new rules that are required by law to take effect on July 16.
Commissioners will meet Tuesday morning to discuss a broad exemption for over-the-counter derivatives trading, so that the market can continue to operate as usual until regulators complete the new rules. Companies and banks with derivatives contracts, also known as swaps, are worried that any deals done after the missed deadline could be challenged in court.
The Dodd-Frank law, approved nearly one year ago, set specific deadlines for regulators to write and finalize rules policing the multi-trillion-dollar derivatives market. Among them: new requirements to use clearinghouses to guarantee derivatives trades and to improve transparency in the secretive market.
A derivative is a sophisticated financial instrument whose value is derived from the value of another asset. Large companies often use derivatives to hedge against risks in interest rates, oil prices, foreign exchange, or even weather.
The Securities and Exchange Commission, which has a smaller role in regulating the derivatives market, announced on Friday that it would suspend some of the new derivatives rules.
“While such swaps will be subject to provisions addressing fraud and manipulation, the Commission intends to provide temporary relief from certain other provisions of the Exchange Act so that the industry will have time to seek, and the Commission can consider, what if any further guidance or action is required,” the SEC said in a statement. The agency also estimated that it had either proposed or finalized rules for about two-thirds of more than 90 derivatives-related measures required by the law.