U.S. watchdog allows delay to smooth transition to swaps trading

By Douwe Miedema

WASHINGTON, Sept 28 | Sat Sep 28, 2013 2:58pm EDT

WASHINGTON, Sept 28 (Reuters) - The U.S. derivatives regulator late on Friday gave a new and untested type of trading platform a bit more time to comply with some of its rules, to smooth the transition to regulated trading next week.

The Commodity Futures Trading Commission (CFTC) has been rushing through permits for the platforms - called Swap Execution Facilities - that must open their doors for customers on Wednesday.

The agency wanted to be ahead of a possible U.S. government shutdown next week, but has refused to give in to industry demands to delay the Oct. 2 deadline by which the newly created SEFs have to comply with its rules.

Swaps are complex financial contracts that can be used to offset financial risk, but are predominantly a favorite speculation tool for hedge funds, and were widely blamed for exacerbating the 2007-09 global financial crisis.

The new platforms are one measure to regulate the $630 trillion market - dominated by investment banks such as JP Morgan Chase & Co, Bank of America and Citigroup - to make it more transparent and less risky.

Late on Friday, the CFTC issued three letters delaying some of the strict new rules for the SEFs, which are run by large derivative brokers such as ICAP and GFI but also by Bloomberg LP and Thomson Reuters.

They can now delay trade reporting by one month for foreign exchange swaps, and by two months for equity and other commodity swaps, one of the letters said.

CFTC Chairman Gary Gensler said on Friday that there would be no delay for data reporting for fixed income and credit swaps, the bulk of the market.

The companies can also delay certain documentation and technological connectivity requirements, collectively known as onboarding, by up to a month.

A spokesman for Gensler said the onboarding delay would be for two weeks, but Commissioner Bart Chilton pushed for a two-month delay and the period was then extended at the last minute.

The delay in onboarding will be welcomed by SEF clients such as large asset managers who had complained there wasn't enough time to go through all the rule-books and make an informed choice who they wanted to do business with.

The third letter granted swap counterparties the same reporting delay as the SEFs, because the reporting by the former can depend on that by the latter.

The SEF rules ban the practice of privately negotiating swap deals - something that was largely done over the phone and was therefore hard to control.

Deals must now be entered into systems that are more like stock exchanges, though negotiating over the phone will still be allowed as long as buyers and sellers can prove that they have spoken to more than one counterparty. (Editing by Christopher Wilson)

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Watchdog Halts Action on Researchers

The federal Office for Human Research Protections announced on Wednesday that it would suspend action against the University of Alabama at Birmingham, which it said in March did not adequately inform parents about the risks to their premature infants of enrollment in a large research trial.

In a letter dated Tuesday, the watchdog office still maintained that researchers had not properly informed parents, and that it could still require that the university and 22 other trial sites, which include many of the country’s top research universities, take corrective action. But it also acknowledged that federal guidelines about a researcher’s obligations needed to be clarified and issued. On the office’s Web site, the federal Department of Health and Human Services announced that a public meeting to debate such guidelines was forthcoming.

The timing of the letter coincided with the publication on the Web site of The New England Journal of Medicine of an opinion article by leaders of the National Institutes of Health that took issue with the agency’s initial condemnation of the Surfactant, Positive Pressure, and Oxygenation Randomized Trial, widely known as Support. Both the agency and the N.I.H. are branches of Health and Human Services.

The Journal also published a letter, signed by 46 doctors and scholars, that criticized the office’s initial action as overreaching and having a potentially chilling effect on essential research.

At the center of the uproar, which has engendered commentary from scientists, is whether researchers needed to disclose to parents the risks of a randomized trial of higher and lower oxygen levels administered to premature infants. The levels of oxygen concentration given to the infants were within the range of 85 percent to 95 percent, the standard treatment recommended by the American Academy of Pediatrics. Researchers wanted to pinpoint more precisely the level at which the risks of eye damage or neurological damage, or even death, were abated.

There were risks to the infants at either end of the narrow band. The results, published in The New England Journal of Medicine in 2010, showed that lowering the oxygen levels led to greater mortality rates than expected.

But as the office wrote, “Some physicians, recognizing the particular concerns about risks near the low (85 percent) and high (95 percent) ends of that range, might choose to avoid one or both of those regions.”

Dr. Joel E. Frader, a pediatrician and professor of medical humanities and bioethics at Northwestern, who signed the letter in The Journal, felt that the office initially did overreach, but also that the researchers did not properly inform parents of all risks. Because there was a band of oxygen saturation levels, he said, there was no clear standard of care for these infants, only an “acceptable range.” And parents should have been told that, he said.

“It’s the obligation of investigators to say, ‘Here’s the debate, here’s how we’re trying to answer the question, and that involves the possibility that there is an additional risk with being a research subject,’ ” he said.

He applauded the effort to clarify guidelines for disclosure, even in standard-of-care trials. Researchers should not shy away from fully informing subjects, he said. “There is no empirical evidence that transparency and clarity decreases participation in clinical research,” he said.

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