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Political Economy
Posted at 11:07 AM ET, 06/14/2011

Commodity panel gives itself more time to regulate derivatives

As federal efforts to regulate some of the wildest corners of Wall Street fall behind schedule, officials declared Tuesday that they might take until the end of this year to complete the task.

The Commodity Futures Trading Commission voted to give itself until Dec. 31 to impose new restrictions on trading in derivatives, financial instruments that can be used to hedge against risks or make speculative investments.

Last year, when Congress passed the sweeping Dodd-Frank Act in response to the financial crisis, it said that new restrictions on much of the largely unregulated market in derivatives would kick in July 16. But it left the CFTC an out if it could not meet the deadline, and on Tuesday the agency seized the opening.

CFTC Chairman Gary Gensler called for the extension but delivered a word of caution.

Until a new regulatory regime is implemented, Gensler said, “the public remains unprotected.”

In a written statement, CFTC commissioner Bart Chilton echoed that point.

“Markets are not much safer than they were when the economic meltdown occurred,” he said.

A type of derivative known as swaps, the focus of Tuesday’s action, trade in an opaque realm where their true value can be hard to gauge and some players can exploit hidden advantages over others. They are difficult for regulators to monitor.

“We still aren’t seeing into dark ... markets like we should, much less regulating them,” Chilton said. “We still lack limits on excessive speculation that is impacting consumers who at times are paying a Wall Street premium, and we have not addressed super-fast cheetah traders who may be instigating mini flash crashes or posing risks to markets,” he said.

Regulators have yet to write rules translating many of Congress’s Dodd-Frank mandates into specific plans.

The result is that businesses and investors are facing major uncertainties and will for months to come.

Tuesday’s vote means businesses get a temporary reprieve from some of the law’s provisions.

Other provisions of the law do not require rulemaking, and they will take effect as Congress planned.

Regulators have been struggling with the magnitude of the rulemaking task even as they are buffeted by intense corporate lobbying. The Securities and Exchange Commission, which shares responsibility for writing the rules on swaps, said last week that it, too, would give businesses temporary relief.

By  |  11:07 AM ET, 06/14/2011

 
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