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No Offshore End-Run Around Derivatives Reform

Submitted by on February 7, 2013 – 4:54 pm

One of the major accomplishments of the Dodd-Frank Act of 2010 was to require basic regulatory standards of transparency and safety in the market for derivatives – the complex and previously unregulated financial markets that brought down AIG and helped trigger the financial crisis. That effort now faces a major threat. Wall Street’s latest scheme for undermining reform is to limit the applicability of the law so that companies can escape derivatives oversight by shifting business overseas – something they can do simply by hitting a key or two on a computer screen.

Tell Washington to stand firm on derivatives rules to protect our financial security.

The Commodity Futures Trading Commission is writing the rules to implement the law, and the approach they proposed covers transactions that could jeopardize our country’s financial security, no matter where they occur. That’s how it should be. It’s how Dodd-Frank was written. Modern financial markets are inherently global. The big banks have hundreds of foreign subsidiaries each. They can move transactions among them with ease; and their profits and losses return to affect the parent company, the U.S. economy, and taxpayers.

Now Wall Street – with help from foreign banks and foreign regulators – is pushing for rules that would effectively limit the scope of U.S. enforcement to derivatives traders physically based in this country. This would be a giant loophole, encouraging banks to move transactions offshore to escape regulation, and thus permitting an indefinite continuation of the kind of reckless activity that helped crash the economy in 2008 and more recently led to JP Morgan’s massive “London whale” debacle, at a cost of $6 billion and counting.

Tell the CFTC commissioners you want them to stand up to Wall Street and stand up for rules that protect our economic security.

We need strong rules that cover all transactions with an impact on our economy in order to protect us from the perils of unregulated derivatives trading. The banks say it should be enough for them to follow the rules of the countries where their subsidiaries are located. But some countries are years away from serious regulation of derivatives, and some see loose rules as a way of wooing business. Exempting companies from U.S. regulation would trigger a ”race to the bottom” as foreign countries compete to become regulatory havens. To learn more, see:

AFR Statement to Agriculture Committee

Teleconference: Cross-Border Exemption = Backdoor Repeal

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