U.S. regulators need flexibility in overseeing cross-border swaps, a lawyer for the Commodity Futures Trading Commission told a federal judge as he defended the agency’s reliance on guidance rather than formal rules in a lawsuit brought by Wall Street’s largest lobbying groups, Bloomberg News reported yesterday. Congress directed the CFTC to regulate overseas trading of swaps to prevent a catastrophic market failure like the one involving American International Group Inc. (AIG) in 2008, Robert Schwartz, a lawyer for the agency, said at a hearing in federal court in Washington, D.C. The CFTC didn’t want to bind itself “with inflexible rules,” Schwartz said. “The markets change all the time. They change their business practice to avoid regulation where they believe it is in their interest.” He asked U.S. District Judge Paul Friedman to dismiss the case, arguing that if swaps market participants prevail in court they would have “free rein to conduct their business overseas without consequences.” The lawsuit — also filed by the International Swaps and Derivatives Association and the Institute of International Bankers —is one of a series of Wall Street challenges to U.S. efforts to overhaul financial regulation following the worst economic collapse since the Great Depression. The trade groups represent Goldman Sachs Group Inc., Deutsche Bank AG, JPMorgan Chase & Co. and other swap dealers. The 2010 Dodd-Frank Act gave the CFTC power to bring swaps, which have been traded behind closed doors, under U.S. oversight for the first time.
