WASHINGTON -- Global regulators will meet in New York on Wednesday, hoping to hammer out a deal on how to jointly supervise the $650 trillion derivatives market, a thorny issue they have to solve before the end of the year.
Years after opaque derivatives markets were widely blamed for exacerbating the financial crisis that peaked in 2008, regulators have largely completed new rules to make the industry less susceptible to sudden crashes.
They are now facing the task of ensuring the rules are similar in each country so as not to allow banks to shift their business to jurisdictions with softer rules, while at the same time keeping markets competitive.
The Commodity Futures Trading Commission - the top U.S. derivatives watchdog - has been criticized by regulators in Europe and Asia for its aggressive stance in applying domestic U.S. rules to traders abroad.
Together with the U.S. Securities and Exchange Commission, it will now host a meeting for international derivative regulators on Nov. 28, an SEC spokesman said.
The closed-door meeting has not previously been made public, though the date was mentioned at a CFTC meeting on Nov. 7. However, participants at that meeting did not specify what the date referred to.
"On the 28th of November, every investment should be made that the (principals) come to a consensus, and then we go home and implement these ... consensus rules," Emil Paulis, a senior European Commission official said at the time.
The dozen-or-so regulators have met a number of times in the past year, but the present session may attract more attention than previous ones because the regulators need to come up with a plan before the end of the year.
The Financial Stability Board (FSB) - a taskforce established in 2009 by the G20 economies to supervise their global overhaul of the financial system - last month urged the supervisors to stick to the deadline.
The FSB did not organize this week's meeting, nor would it take part, a source familiar with the situation said.
The CFTC is executing parts of the U.S. Dodd-Frank law that aims to make the swaps market - dominated by large investment banks such as Morgan Stanley, JPMorgan and Barclays - more transparent.
Under its current guidance, the CFTC forces foreign banks to stick to the same rules as U.S. market parties if they want to trade with U.S. firms, and if they exceed a threshold of $8 billion in swaps trading a year.
It will only grant an exception if the local regulator has rules that are comparable to its own rules - a legal principle that is known as substituted compliance.
Some smaller banks have already said they will stop trading with U.S. counterparties as a result.
European and Asian regulators have also complained that the requirement is too burdensome, and the two sides are working on a compromise by which the CFTC would rely more heavily on work already done by local regulators.
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