We applaud this important move by the CFTC to enforce extraterritoriality of US swap regulations and reduce regulatory arbitrage in the swaps markets.
The top U.S. derivative markets regulator on Tuesday launched a plan to close a loophole Wall Street banks may have used to duck new trading rules by shifting business abroad. CFTC Chairman Tim Massad said his plan was a good way to deal with a shift of such operations abroad to units that are not guaranteed by their parent companies in a bid to avoid tough new U.S. regulations. These foreign units could pose a risk to the U.S. economy, even if they are not explicitly guaranteed by the parent company, Massad said. Under Massad's plan, a bank would need to comply with the U.S. rules if the unit was consolidated into the financial statements of the U.S. parent company, regardless of whether or not there was an explicit guarantee.