BUSINESS

In Financial Reform, Banks Want Speed On New Rules, Delay On Implementation

05/02/2011 09:33 am ET | Updated Jul 02, 2011

WASHINGTON (Christopher Doering) - Wall Street banks and major market players will deliver a mixed message to U.S. regulators at a meeting this week: hurry up and tell us what you are going to do, but give us more time to respond before you do it.

U.S. futures and securities regulators, having issued draft versions of most of the major rules required to overhaul the vast over-the-counter derivatives market, are holding a roundtable on Monday and Tuesday to hear from industry on how they should schedule the rollout of their reforms.

Bankers, exchange executives and traders have been fiercely critical of the brisk pace of reform, arguing that sloppy rules could reduce market liquidity, push more trading to unregulated markets, and ultimately lead to higher prices for consumers.

At the same time, they say regulators are not doing enough to tell the industry about critical components of the reforms and how the rules will be written so they can prepare.

"When are we going to show them this? Are we just going to continue to roll this out and they're going to have to read it in piecemeal. Why don't we give them the full picture?" Republican Commodity and Futures Trading Commissioner Scott O'Malia, who has worked for Mirant Corp on corporate risk management and energy trading among wholesale power producers.

"The roundtable is us taking in information about what the right order is" to implement these rules, he told Reuters.
The two-day meeting comes as the CFTC and Securities and Exchange Commission find themselves nearing a mid-July timetable to implement new financial reform legislation -- a deadline they have acknowledged they will miss.

The meeting, expected to include representatives from Morgan Stanley, JPMorgan and CME Group, will discuss topics including clearing, registration of new entities, data reporting, and end users.

The CFTC on Friday outlined 13 factors it was considering as it determines when those affected by sweeping new financial reform rules must comply. For example, it is considering giving more time to follow the new requirements to market participants who had not been regulated before.

A source familiar with thinking at the SEC and CFTC said instead of releasing a plan to public comment -- a process that could take several weeks -- regulators could show transparency and collect comments in just two days.

"This is 100 percent about timing and they don't want to waste another three months" with a comment period, said the source, who added regulators know what they want to do with the rules but are unclear as to order to get them done.

"If you look at it from the chairman's perspective it makes perfect sense. I can say I checked that box, I gave everyone a chance to comment."

O'Malia downplayed the reason behind the meeting, which he called an opportunity to collect industry insight. He still wants regulators to allow the public to comment on a final rulemaking and implementation schedule.

The CFTC has introduced dozens of proposals as it and the SEC boost oversight of the $600 trillion over-the-counter derivatives market as part of the Dodd-Frank reform law.

During the rule-making process, the futures agency has been hounded by the industry as well as by lawmakers and some of its own commissioners for its fast pace. Some have called the sequence of rules "irrational."

Republican lawmakers have proposed a bill to delay implementation of rules involving derivatives by 18 months.

James Field, chief financial officer at Deere & Co, recently told lawmakers a "workable" timetable is needed "given the complexity of the business issues involved, the number of potentially affected market participants, and the potential disruption to legitimate risk mitigation strategies."

There are signs regulators are beginning to heed the call. Just last week, the CFTC said it was reopening the comment period for most of the rules it has already proposed for as much as 30 days.

(Editing by David Gregorio)

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