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CFTC provides Dodd-Frank relief to energy, agricultural swaps traders

Scott O’Malia

The Commodity Futures Exchange Commission granted last-minute relief from the 2010 Dodd-Frank Act to energy traders on Friday, saying that firms would have until Dec. 31 to convert billions of dollars of swaps to futures contracts.

The delay allows firms like CME Group, Inc., and others extra time to reform rules that would allow customers to conduct trades in energy, agriculture and metals as futures contracts rather than swaps, thereby allowing large traders to avoid new rules under Dodd-Frank, Reuters reports.

Rival IntercontinentalExchange, Inc., announced several months ago that all its contracts would convert to futures before the deadline, but CME’s transition to futures was more uncertain. Many of CME’s contracts are labeled as bilateral “contingent swaps” in the over-the-counter market before they are converted to futures on the firm’s Clearport platform.

The swaps market has historically been distinguished from the highly regulated futures market, as prices were clear, trades were conducted bilaterally and regulation of the swaps market was essentially nonexistent, according to Reuters.

Under Dodd-Frank, however, swaps contracts are subject to increasing regulation, which some critics say will make swaps more difficult to trade than futures. Large traders like Cargill, Inc., and BP argue that the new rules related to “swap dealers” were designed for banks, not merchants.

The late announcement could intensify pressure and criticism on Gary Gensler, chairman of the CFTC, as critics maintain that he has moved too quickly with reforms, creating more complexity and confusion.

“We brace ourselves for the results of new regulations meant to bring transparency to the market that have in reality brought confusion, concern and do not inspire confidence in the CFTC’s leadership,” Sen. Pat Roberts, the ranking Republican on the Senate’s agricultural committee, said, Reuters reports.

CFTC Commissioner Scott O’Malia echoed that sentiment.

“The fact that market participants are fleeing the Commission’s swap regulations is proof that the Commission has not developed clear and cost-effective rules,” O’Malia said, according to Reuters. “The Commission should have never gotten to the point where it was forced to issue such last-minute piecemeal relief.”

The CFTC said that the delay was warranted “in order to provide participants in the market…sufficient time to determine whether and in what manner to transition those swap activities to similar products in the futures markets that will become available in the near future, and to enable any such transition to proceed in an orderly manner,” Reuters reports.

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