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Asian regulators express concern regarding overseas application of Dodd-Frank rules

Asian regulators have requested that U.S. regulatory authorities review proposed derivatives rules to ensure that the new requirements do not conflict with those rules established by sovereign nations.

Under the 2010 Dodd-Frank Act, non-U.S. banks that conduct trades with U.S. counterparties are required to register as swap dealers and adhere to risk management and capital standards, Reuters reports.

Five groups, however, including the Australian Securities and Investments Commission, the Hong Kong Monetary Authority, the Monetary Authority of Singapore, the Reserve Bank of Australia and Hong Kong’s Securities and Futures Commission, petitioned U.S. regulators to consult with foreign regulators to establish how derivatives rules are applied overseas.

“The impact from any resulting (likely significant) increase in compliance costs and the potential reduction in liquidity of [over-the-counter] derivatives markets should not be underestimated,” the groups said in the letter, according to Reuters.

The definition of a “U.S. person” by the Commodity Futures Trading Commission, which applies to any person or entity that will have an effect on American commerce, has elicited criticism and caused some unease in foreign markets that have trading relationships with the U.S.

“Market practitioners have…highlighted that it is not easy to identify if a counterparty is a U.S. person,” the groups said, further requesting that the CFTC delay the application of requirements “until there is international consensus on how such cross-border transactions should be regulated,” Reuters reports.

The groups also expressed concern related to risks that local and regional clearing agents may be unable to obtain American regulatory approval in time for clearing mandates under the CFTC.

“Potential market disruption or fragmentation, with consequently increased risks to systemic stability and market liquidity in our markets, may arise as market participants may have to change their business models or even withdraw from certain businesses, all within a relatively short period of time,” the groups said, according to Reuters.

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