Washington: In a match made in Congress, the Securities and Exchange Commission and Commodity Futures Trading Commission are supposed to work in tandem to oversee the $601 trillion (Dh2,207 trillion) swaps market. Now financial companies may be stoking differences between the two in a quest for favourable treatment.
Firms including BlackRock, the world's largest asset manager, have praised the SEC's approach to a rule meant to curb abuses by swap dealers selling to less sophisticated investors including pension funds, endowments and local governments. Lawmakers told regulators to write the rule after swaps pushed Jefferson County, Alabama, to the brink of bankruptcy.
Weaker controls
US Senator Carl Levin said the SEC was proposing weaker controls than Congress wanted when it added the provision to the Dodd-Frank overhaul of rules for Wall Street.
"The CFTC took the lead in drafting the standards and did a pretty good job carrying out congressional intent," Levin, a Michigan Democrat, said in a statement. "The SEC should have done likewise, instead of proposing weaker standards that invite industry insiders to pressure the CFTC to weaken its approach."
BlackRock expressed an opposing view in an August 29 letter to the SEC. The agency has come up with "workable solutions to some of the industry's concerns over the adverse consequences" of the CFTC's version of the rule released December 9, wrote Joanne Medero, Blackrock's head of government relations. She recommended "that the CFTC incorporate the many constructive differences in approach that the SEC has proposed".
The 2010 Dodd-Frank Act gave the CFTC authority over most swaps, with the SEC overseeing those based on securities, to improve transparency and reduce risk in the market.
Dodd-Frank gave the regulators "virtually identical mandates", said Levin, who heads an investigations panel that examined the causes of the 2008 financial crisis, including how swaps contributed. The agencies are now working on their final drafts as lobbyists try to steer the efforts.
Best interests
Under the law, swap dealers must act in the best interests of towns, cities and other so-called special entities when serving as their adviser. The CFTC proposed regulations implementing those requirements on Dec. 9; the SEC proposed its rule on June 29.
The SEC version would allow so-called independent representatives to the investors to be "entirely financially beholden" to swaps dealers because the definition of independence is weaker than the CFTC's approach, said Barbara Roper, director of investor protection for the Consumer Federation of America.
