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CFTC to Miss Regulation Deadline for Derivatives

Derivatives traders in the United States will find out soon how a missed deadline for new rules will be handled, a senior U.S. regulator said on Tuesday.

Bryce Duffy | Stone | Getty Images

The U.S. Commodity and Futures Trading Commission (CFTC) has said it will miss the July 16 deadline for implementing rules contained in last year's Dodd-Frank legislation to regulate derivatives and other markets.

As a result, many of the off-exchange traded derivatives contracts may lose legal protection, but Scott O'Malia said the CFTC is set to provide an interim solution.

"We are working on a document and a proposal right now that creates certain safe harbours for self executing rules, to delay them until the new rules are in place," O'Malia, one of the CFTC's five commissioners who approve new rules, told Reuters in an interview.

"We've had some staff meetings to evaluate what rules are going to be implemented, when, and how we are going to deal with that," O'Malia said.

"We are going to provide some temporary safe harbour until the underlying rule or definition is provided... So all of this will hopefully be clear in a week or two," O'Malia said.

Some of the so-called self executing rules that do not depend on further definitions or regulation to take effect, will be applied on July 16, he added.

"The staff has identified the separation, which rules apply," O'Malia said.

Position Limits

The CFTC has also proposed position limits on commodities markets to stop individual firms from building up positions that could unduly influence prices.

Some lawmakers have accused hedge funds and other investors of speculating in commodities to push food and energy prices to record highs, though many regulators say factors such as supply and demand constraints are the key price drivers.

O'Malia said the limits won't be introduced until there is enough data on positions across off and on exchange markets to ensure the curbs are calibrated properly.

There is a realistic possibility that limits could be in place by the end of this year, O'Malia said.

"The less complicated we can make it the sooner we can move forward," O'Malia said.

"If we were going to have a spot month we could do that sooner. If it requires us to do aggregate, all months combined, that is going to require additional data," O'Malia said.

The European Union's financial services chief Michel Barnier has said he will propose position limits along the lines of the United States in his reform of EU trading rules in October.

The Group of 20 (G20) leading economies, which includes the United States and EU, may agree in principle this year a global framework to share data on market positions.

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