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Several shallower pools of trading are emerging
in what had been one deep, efficient market as brokers outside
the United States seek to avoid having to comply with sometimes
conflicting U.S. and home country rules.
Mark Wetjen, one of the four commissioners at the U.S. Commodity
Futures Trading Commission (CFTC), said there was some agreement
at the watchdog for changes.
It was, however, unclear if fragmentation was due to possible
errors in U.S. rules, or to the rules being introduced ahead of
their European equivalent, he told reporters in London.
"Fortunately, the market fragmentation occurring around the
globe largely has been a creature of the law. It is therefore
within the power of lawmakers to minimize the negative
consequences associated with it," Wetjen said.
One CFTC rule requires a platform anywhere in the world to be
registered in the United States even if there is only one U.S
participant and Wetjen was "not sure we have got that right".
Also the MATT rule, whereby operators of U.S. trading platforms
decide if a swap must be traded electronically rather than
privately between banks, also needed changing because of the
conflict of interest it presents, Wetjen said.
It is "probably going to be a lot more sensible" to allow
regulators to decide if a swap should be traded on a platform,
bringing the rule more in line with the European Union's
approach, he said.
The CFTC should also bring an end to the so-called "name give
up", a practice whereby the identities of buyers and sellers are
disclosed after a trade has been closed, Wetjen said. This has
made hedge funds and investment funds wary of participating in
the market.
Mark Carney, head of the Group of 20 (G20) economies' Financial
Stability Board, said on Friday that implementation of
derivatives rules globally was uneven, and called for deeper
trust among supervisors to apply common standards fully and
consistently.
Wetjen said further coordinated regulation by the G20 would
minimise market fragmentation even more.
(Additional reporting by Douwe Miedema in Washington, Editing by
Carolyn Cohn and Mark Potter)
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