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Foreign Markets Balk at New Swaps Rules

Swap dealers will soon have to face new risk management procedures.

The Commodity Futures Trading Commission recently announced a new set of rules that will affect the way swap dealers and other major swap participants deal with risk management procedures.

The new rules deal largely with the way in which swaps are documented and reconciled, as well as the way they are valued and netted, according to Reuters. In its final rule action announcement, the CFTC said the rules are part of the Dodd-Frank Act, which contains a variety of Wall Street regulations and consumer protections.

"Documentation of swaps is a critical component of the bilaterally-traded, over-the-counter (OTC) derivatives market, while confirmation, portfolio reconciliation, and portfolio compression have been recognized as important post-trade processing mechanisms for reducing risk and improving operational efficiency," the agency said in its announcement. "Each of these processes has been the focus of significant domestic and international attention in recent years by both market participants and their regulators."

While American regulators are generally in favor of the new rules, regulators in other countries are less excited. According to a report from Risk.net, the new swaps rules will lead to market fragmentation and systemic risk across Asia and Australia. In an open letter to CFTC chairman Gary Gensler, the Australian Securities and Investments Commission, the Reserve Bank of Australia, the Hong Kong Monetary Authority, the Hong Kong Securities and Futures Commission and the Monetary Authority of Singapore suggested delaying the rules and staggering implementation of the rules outside the United States.