For the foreign-exchange sales team in Citigroup Inc.'s London office, Dodd-Frank regulations mean extra hours at work.
At least two members of staff have been staying until after 9 p.m. because some clients are no longer allowed to deal with Citigroup colleagues in New York, Alex Jackson, head of European investor sales, foreign exchange and local markets, said in a phone interview on Oct. 25. That's because the Dodd-Frank Act prevents people in the U.S. from trading with counterparts who haven't agreed to International Swaps & Derivatives Association rules, Jackson said. European money managers and Brazilian hedge funds are among customers relying on the arrangements, he said.
"No non-compliant investor or client is able to trade with a U.S.-based salesperson or trader physically located in the U.S.," London-based Jackson said, citing a footnote to the regulations on swaps trading. "Any client who has not signed the ISDA protocol falls under this."
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Citigroup, the second-biggest currency trader, is among banks around the world that are adapting to regulatory initiatives introduced to curb financial-market risks following the 2008 credit crisis and subsequent recession. Of the dozens of derivatives rules being completed, the most contentious have involved how to oversee swaps traded across borders. Deutsche Bank AG is the largest currency dealer, according to Euromoney Institutional Investor Plc.
"This whole regulatory issue is what keeps people at some of these financial institutions up at night in terms of how they have to structure their business, what they have to do to end up making sure they make both their customers happy and that they comply with all of the regulations," Eric Busay, a currency and international fixed-income money manager in Sacramento at California Public Employees' Retirement System, the largest U.S. public pension, with $278.1 billion in assets, said in a telephone interview on Oct. 25.
To provide customers with round-the-clock trading, foreign- exchange dealers typically share online instant-message chats between staff in Asia, London and the U.S., passing contacts to the next team at the end of each region's working day. Phone lines are also redirected, meaning New York colleagues take over from London at around 5 p.m. U.K. time.
Working Overtime
Citigroup asked staff in London, who start at around 7 a.m., to work later after calculating that a "material" number of trades were done each day that could have breached the new rules because they were handled by a part of the firm that's a U.S.-registered swaps dealer, according to Jackson.
While "a handful" of clients have taken advantage of this, demand has been "relatively light," and the number of people working late was reduced to two from four, Jackson said. There are 17 people on the team in London.
Citigroup will probably review in the future whether to continue offering the service, he said. With more clients signing up to the ISDA rules, the bank may move any remaining trading to its Citigroup Global Markets Ltd. unit as an alternative, he said.
JPMorgan Chase & Co., the sixth-largest currency trader as ranked by Euromoney, moved some clients to trade with its J.P. Morgan Securities Plc unit in response to the regulations, according to two people with knowledge of the arrangements. It isn't keeping London staff late on account of Dodd-Frank, said the people, who asked not to be identified, because they're not authorized to discuss the matter publicly.
Patrick Burton, a London-based spokesman for JPMorgan, declined to comment when contacted today by phone.
Sebastian Howell, a spokesman for Deutsche Bank in London, also declined to comment on that bank's trading arrangements.
Bloomberg News
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