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Dodd-Frank rules discourage non-U.S. firms from doing business with American counter-parties

Dodd-Frank regulations that will subject non-U.S. banks to tougher financial requirements have led some institutions to tell their brokers to stop doing business with U.S. firms in order to avoid heightened scrutiny by banking regulators.

American regulators want all banks that trade more than $8 billion of swaps per year with U.S. firms to register as participants in the U.S. derivatives market. Such firms will also be required to adopt reforms aimed at simplifying the regulation of swaps, Reuters reports.

The possibility of increased oversight, regulation and scrutiny by American banking regulators has discouraged some participants from conducting trades with U.S. firms.

“Numerous counter-parties in Europe and Asia have requested they do not face U.S.-based counter-parties so they do not build up any swap volumes towards the [$8 billion] threshold,” a senior European swaps broker said, adding that “dozens” of his clients had stopped trading with U.S. firms this month in order to avoid the new regulations, according to Reuters.

Following objections raised by foreign regulators and trade organizations, U.S. regulators pledged to ease up on some of the Dodd-Frank requirements. In response to industry requests for more time, the Commodity Futures Trading Commission delayed a number of rules that would have taken effect earlier this month.

Despite promises by American regulators, Nordea, a Nordic bank, and DBS Group Holdings, southeast Asia’s largest bank by assets, have indicated an unwillingness to become subject to Dodd-Frank regulations.

Kenneth Steengaard, the managing director or currency, money markets and commodities trading at Nordea Markets, said that the bank “did not intend to register as a swap dealer in the United States under Dodd-Frank,” Reuters reports.

Some traders have expressed concern regarding whether non-U.S. firms will cut ties with American counter-parties indefinitely, though traders have also said that European regulators are crafting rules similar to Dodd-Frank so that European firms will likely only see temporary regulatory relief by cutting out American firms.

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