US - Proposed legislation covering the US swaps market risks causing "severe market disruption" for dealers and pension fund clients, an industry body has warned.
In a letter to the Commodity Futures Trading Commission The Securities and Financial Markets Association (SIFMA), which represents US securities firms, banks and asset managers, said the business conduct standards rule should be revised as it would impose a fiduciary duty on dealers that goes beyond the intent of the Dodd-Frank Act.
If given the go-ahead, the rule would govern the relationship between swap dealers and major swap participants and their counterparties, including "special entities," such as pension funds and state and local governments.
SIFMA said even the statutorily-mandated proposals would create problems. It claimed the proposal included requirements based on current industry best practices and self-regulatory organisation (SRO) rules which are rooted in retail customer protection, while the swap deals covered by the proposal are conducted in institutional markets.
As a result, the rule would limit the transactions which could take place in the institutional market by imposing a more restrictive regime than is currently in place in the retail market, said SIFMA executive vice president, public policy and advocacy Ken Bentsen.
"We have serious concerns with the Commission's proposed rule and believe that, if implemented in its current form, it would inappropriately transform the nature of the relationship between swap dealers and major swap participants and their counterparties, all of whom are institutional market participants," Bentsen added.
"We also believe that the overly broad proposal could effectively preclude participation in swap markets by pension plans, municipalities and other entities. As written the rule would seek, in effect, to impose a new fiduciary duty on institutional swap participants, a proposal that Congress rejected during consideration of the Dodd-Frank Act."
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