SEC tries to reassure on trading rules

City A.M. Reporter
THE TOP US securities regulator will seek to assure lawmakers today that the agency is treading carefully as it crafts new over-the-counter derivatives rules to ensure that they will not have a harmful impact on the market.

“We are progressing at a deliberate pace, taking the time necessary to thoughtfully consider the issues raised by various rulemakings before proposing specific rules,” Mary Schapiro said in prepared testimony released a day early by the House Financial Services Committee. “We will take a similar approach as we move toward consideration of the final rules.”

Schapiro is slated to appear before the House Financial Services Committee today alongside Commodity Futures Trading Commission chairman Gary Gensler and Federal Reserve governor Daniel Tarullo. All three regulators are tasked with implementing sweeping new regulations in the Dodd-Frank Act to police the $600 trillion over-the-counter derivatives market.

Their testimony comes just after the Obama administration called for major funding boosts for the SEC and CFTC to help them implement Dodd-Frank. House Republicans have been resistant to budget increases, in part because they fear that some new regulations for derivatives will lead to cost increases for much of corporate America. Of particular concern to Republicans and the industry are provisions in Dodd-Frank requiring regulators to impose capital and margin requirements on swaps – contracts often used by corporations such as 3M and Caterpillar to protect themselves from things like interest-rate fluctuations or stock market volatility. They fear these increased costs will be passed from the banks like JPMorgan Chase & Co and Morgan Stanley that sell the products to the so-called “end-user” companies which are using swaps for hedging, and not for speculation against price movements. Some have also raised fears that regulators will apply it to swaps entered into prior to the July enactment of Dodd-Frank, creating legal and financial uncertainty.