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New rules aimed at making derivatives markets safer and more transparent need tweaking to stop the $690 trillion global market splitting up, CFTC said. Mark Wetjen, one of the four commissioners at the CFTC, said there was some agreement at the watchdog for changes.
It was, however, unclear if fragmentation was due to possible errors in US rules, or to the rules being introduced ahead of their European equivalent, he told reporters in London. "Fortunately, the market fragmentation occurring around the globe largely has been a creature of the law. It is therefore within the power of lawmakers to minimize the negative consequences associated with it," Wetjen said.
One CFTC rule requires a platform anywhere in the world to be registered in the United States even if there is only one U.S participant and Wetjen was "not sure we have got that right".Also the MATT rule, whereby operators of US trading platforms decide if a swap must be traded electronically rather than privately between banks, also needed changing because of the conflict of interest it presents, Wetjen said. It is "probably going to be a lot more sensible" to allow regulators to decide if a swap should be traded on a platform, bringing the rule more in line with the European Union's approach, he said.
The CFTC should also bring an end to the so-called "name give up", a practice whereby the identities of buyers and sellers are disclosed after a trade has been closed, Wetjen said. This has made hedge funds and investment funds wary of participating in the market. Mark Carney, head of the G20 economies' Financial Stability Board, said on Friday that implementation of derivatives rules globally was uneven, and called for deeper trust among supervisors to apply common standards fully and consistently.