Wall Street finds a foreign detour around U.S. derivatives rules
SINGAPORE (Reuters) - Wall Street banks are looking to help offshore clients sidestep new U.S. rules designed to safeguard the world's $640 trillion over-the-counter derivatives market, taking advantage of an exemption that risks undermining U.S. regulators' efforts.
U.S. banks such as Morgan Stanley (MS) and Goldman Sachs (GS) have been explaining to their foreign customers that they can for now avoid the new rules, due to take effect next month, by routing trades via the banks' overseas units, according to industry sources and presentation materials obtained by Reuters.
The rules, a result of Washington's Dodd-Frank reforms, aim to prevent financial catastrophes in the over-the-counter (OTC) market - a huge, opaque market which is partly blamed for felling Lehman Bros in 2008 and fuelling a global financial crisis.
They call for U.S. banks dealing in OTC instruments, such as interest-rate swaps and cross-currency options, to effectively set aside capital against the risk of trades turning sour, execute their trades on electronic platforms and report them to U.S. authorities - requirements that worry the banks' offshore clients and threaten to drive business away from Wall Street. ................(more)