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CFTC, SEC release joint report on inefficient swaps regulation

The U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission released a joint report to Congress yesterday, identifying regulation gaps and inefficient regulations in swaps.

The report exposes the regulatory framework for swaps, intending to “reduce risk, increase transparency, and promote market integrity within the financial system,” the report reads.

Provisions of the Dodd-Frank Act require the CFTC to regulate swaps and the SEC regulate derivatives defined as security-based swaps, including stocks, futures and bonds.

The study was designed to provide a comprehensive view of the Dodd-Frank provisions before regulators implement the mandate.

In addition to the U.S. and Canada, the report examines how other countries in Asia and Europe regulate swaps, a comparison meant to serve as a possible reference tool for U.S. regulations.

Certain areas of regulation that can be “harmonized” and made more efficient are identified in the report. The commissions also included recommendations to achieve these goals.

According to the report, both commissions have instructed staff to participate in “international workstreams” that develop standards for derivatives like swaps, a strategy that may enhance the commissions' ability to effectively regulate swaps and swap entities.
Both commissions recommend staying the course of collaboration between foreign swaps markets in Europe, Japan, Hon Kong, Singapore, and Canada, as well as continuing to develop further framework for derivatives regulation.

The recommendations, the report reads, “provide a roadmap for successful consultation and coordination with non-U.S. Authorities to promote effective and consistent international standards in the regulation of [over-the-counter] derivatives.”

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