U.S. regulators are poised to approve rules today that will require most swaps trades to be reported to the public, a response to lax derivatives oversight in the run-up to the financial crisis.
The rules up for a vote at the Securities and Exchange Commission (SEC) will specify what information has to be reported publicly as well as data intended for regulators who surveil the market. The regulations are the latest step in efforts by the SEC and Commodity Futures Trading Commission (CFTC) to increase transparency in the $691 trillion swaps market.
The SEC's rules come more than six years after the collapse of Lehman Brothers Holdings Inc. and government rescue of American International Group Inc. that was rooted in part in unregulated swaps. By creating a record of swaps trades, regulators aim to monitor for systemic risk while giving investors a better idea of fair prices.
Five Wall Street banks dominate the U.S. swaps business. JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc., and Morgan Stanley control 95 percent of cash and derivatives trading for U.S. bank holding companies as of Sept. 30, according to the Office of the Comptroller of the Currency. While the CFTC oversees the bulk of the market, the SEC regulates swaps based on a single company's bonds or loans, equities, and indexes based on nine or fewer securities.
The CFTC has already approved rules that require dealers and other investors to provide price, volume, and other information to the databases and the public.
Banks have a sought a delay on rules to handle the reporting of large trades. They say that making data on block trades immediately public will increase trading costs because other traders will be able to detect the large demand and front-run their orders. It isn't clear how the SEC will address the issue.
The SEC measures up for a vote today also will lay out rules for the swap data repositories, the central record-keepers of the information. The databases will function partly like the price feeds operated by stock exchanges that report equity trades to the public.
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