ICAP Plc is seeking U.S. oversight of an overseas swap-trading platform a month after Wall Street lobbying groups sued the Commodity Futures Trading Commission (CFTC) trying to curb the agency's international reach.
ICAP, the world's largest broker of transactions between banks, wants to register a London-based platform with the CFTC to follow Dodd-Frank Act rules for swap-execution facilities (SEFs) and provide access to U.S. traders, according to an application submitted this month. The brokerage is the first large SEF platform to seek U.S. approval for an overseas-based entity.
"In the event of market demand to facilitate SEF liquidity across Europe and the European markets, ICAP Derivatives Limited should allow us to operate one liquidity pool leveraging both our U.S. and London capabilities," Peter Best, chief operating officer of ICAP's SEF, said in an email. The platform will support trading in interest rate swaps in U.S. dollars, euros, and pounds sterling, Best said.
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The question of how to apply the Dodd-Frank rules overseas has been among the most contentious battles between the financial industry and the CFTC, whose power to regulate swaps was expanded by the 2010 law. Largely unregulated deals helped fuel the 2008 credit crisis and led to the U.S. rescue of American International Group Inc., the New York-based insurer that traded credit-default swaps out of its London offices.
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The biggest banks conduct at least half their swaps business with overseas clients, according to some estimates. Groups representing companies including Goldman Sachs Group Inc. and JPMorgan Chase & Co. sued the CFTC in federal court last month, seeking to curb its reach.
"ICAP is showing there really is no reason you can't be a European SEF and just go ahead and comply with the U.S. rules," Marcus Stanley, policy director at Americans for Financial Reform, a coalition including the AFL-CIO labor federation, said in a telephone interview yesterday. "It's past time for Wall Street to kind of comply with this framework instead of challenging it at every turn."
The CFTC is planning to hold a Feb. 12 meeting with industry representatives to discuss cross-border issues.
The suit filed by the Securities Industry and Financial Markets Association, International Swaps and Derivatives Association, and Institute of International Bankers, claims the CFTC illegally set regulations by issuing guidance documents and staff advisories rather than commission-approved rules.
The legal action was prompted in part by CFTC letters in November that said U.S.-based traders who arrange, negotiate, or execute a deal—even on behalf of an overseas affiliate—must comply with Dodd-Frank. A Nov. 14 CFTC advisory was published after Bloomberg News reported that banks were using a footnote, number 513, in an earlier guidance document to keep deals off trading platforms and away from the agency's rules.
The CFTC has registered more than a dozen SEF platforms, including those owned by Tradeweb Markets LLC, MarketAxess Holdings Inc., trueEX LLC, and Bloomberg LP, parent of Bloomberg News.
The case is SIFMA v. U.S. CFTC, 13-cv-1916, U.S. District Court, District of Columbia (Washington).
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