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The waiting game: Will the CFTC scale back its costly cross-border derivative rules in time?
By Nik Venema | September 3, 2013

The clock is ticking for US banks who are now vulnerable to lose the majority of their European swaps clients due to an imminent Dodd Frank rule that will come in effect a month from now. October’s Dodd Frank regulation will require all US banks to clear their OTC derivative swaps with one central clearing house and at the moment, it will also require their foreign branches in Europe to do the same.

This is of course costly to clients and would cause a mad dash by them to move away from their US based dealers, to European ones, which would be wildly unfair for US banks who stand to lose millions.
The core of the issue is in the lack of harmonization between regulatory bodies. International regulatory organizations have tried and failed to reach a consensus for the right rules. In the meantime, companies doing business around the world are faced with trying to make everybody happy.

The temporary solution lies in two different choices: Banks can either move their foreign branch clients to affiliate branches, a tedious legal process, or they can continue to submit no-action relief requests. The problem with latter is there is no way of knowing if the CFTC will approve it. All that’s left for banks to do is twiddle their thumbs and cross their fingers that the CFTC will revise their rules to appease everyone. This is where the CFTC loses sight of its original goals, moving too quickly in the wrong direction, and simply folding on their decisions when complaints arise. Ultimately they accomplish nothing.