The proposal would govern when the collateral standards must be met by 60 firms, largely divisions of U.S. and foreign-based banks, that trade overseas. The regulation, which would cover the largest non-U.S. affiliates of Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and Morgan Stanley, would still allow firms to comply with foreign rules when the agency deems them comparable to Dodd- Frank standards, according to the CFTC.

Spokesmen for Goldman Sachs, JPMorgan, Citigroup and Morgan Stanley declined to comment. A spokesman for Bank of America had no immediate comment.

CFTC commissioners Mark Wetjen, a Democrat, and J. Christopher Giancarlo, a Republican, voted to support the proposal but cited doubts about whether it's the best approach. Giancarlo said the proposal includes a narrow approach toward determining when foreign rules are comparable.

“In a perfect world, all G-20 countries will adopt comparable margin requirements, but we cannot let the perfect be the enemy of the good,” Giancarlo said in a statement. “We must focus on broad objectives, not specific requirements.”

Massad said the agency, which began looking into overseas practices last year, found evidence that banks were removing parent-company guarantees or stopping to grant the guarantees.

In 2014, the CFTC sent letters to affiliates of the five U.S. banks asking them about the guarantees, how the firms had changed their operations and whether they had disclosed the changes to counterparties, according to documents obtained by Bloomberg News. Each of the five banks sought confidential treatment for its responses, the documents show.

The proposal released on Monday would allow transactions to be exempt from U.S. rules only when they're between banks and clients, and neither has a guarantee from a U.S firm or has financial results consolidated with a U.S. parent.

'Significant Step'

Advocates for strict financial regulation have continued to call for overseas entities to meet U.S. standards for trading regulations that seek to increase price competition and transparency in the market.

“Plugging the de-guaranteeing loophole for margin alone is a significant step, but it doesn't take us all the way there,” Marcus Stanley, policy director for Americans for Financial Reform, said in an interview before the proposal was released. “It's somewhere between a quarter and a half step.”

Monday's proposal governs only collateral rules for swaps traded directly between two firms and not guaranteed by a third- party clearinghouse. The proposal is separate from a cross- border policy released in recent years that governs rules for trading platforms, market data and other types of Dodd-Frank regulations.

Massad said the agency's proposal about collateral responds to risks that can flow back to the U.S. He said that a different response may be appropriate for rules that govern trading and market data.

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