By Jessica Holzer
Commodity Futures Trading Commission Chairman Gary Gensler said Thursday new derivatives rules must extend across U.S. borders to prevent risks from hurting the U.S. economy.
Mr. Gensler, in prepared remarks at an international bankers' luncheon in New York, argued the risk of financial companies' overseas branches and affiliates "inevitably flows back to the United States" during a default or crisis.
The CFTC is working on a draft rule to apply new derivatives rules to all deals involving a U.S. firm, even if the trade is done by a foreign subsidiary or an offshore branch.
The draft rule is opposed by major banks, but Mr. Gensler has seized on J.P. Morgan Chase and Co.'s (JPM) recent $2 billion-plus trading blunder, which stemmed from wrong-way bets out of its London office, to argue that the new regulatory regime for derivatives must reach overseas.
"Recent events at J.P. Morgan Chase are a stark reminder of how swaps traded overseas can quickly reverberate with losses coming back into the United States," he said.
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