By Dave Clarke and Rachelle Younglai
WASHINGTON (Reuters) - The securities regulator on Friday started sketching out how the market will start receiving "real-time" information about trading in the roughly $600 trillion over-the-counter derivatives market.
The Securities and Exchange Commission and fellow market regulator the Commodity Futures Trading Commission are writing dozens of rules for the opaque market.
On Friday, both regulators started to define parameters for the warehouses or repositories that will store the swaps trade data.
The SEC is mulling registration of the so-called swaps data repositories and requiring the warehouses to give the agency access to security-based swaps data among other things.
The SEC and CFTC are also starting to determine what kind of information and how quickly the trades must be reported to the so-called swaps data repositories.
Under the SEC's swaps plan, parties to a security-based swap transaction would be required to report real-time information about each transaction to the warehouse.
The off-exchange derivatives are used by companies, municipalities and others to hedge against fluctuations in commodity prices and interest rates.
The Swap Financial Group, which advises nonfinancial corporations on derivatives strategy, said there should be a delay in the real-time reporting of block trades or large deals for end users.
"There is competing public good between an entity like the city of Los Angeles and an entity like a hedge fund and a speculative trader seeking to get price discovery," said Peter Shapiro, managing director with the Swap Financial Group.
The SEC plans to solicit comment on the general criteria that would be used to determine the size of a block trade.
The SEC has already proposed rules to mitigate conflicts of interests at venues that will handle the swaps and a plan to prohibit fraud and manipulation in the derivatives market.
The agency must write more than 100 rules for financial players before mid-July 2011.
The SEC will also vote on a proposal that would require the registration of advisers to hedge funds and private equity funds with more than $150 million in assets under management.
The increased oversight is intended to help the SEC root out fraud in the $1.6 trillion hedge fund industry, although players do not believe the new rules will burdensome.
"They are not going to be hard to comply with," said Ron Geffner, who works with hedge funds as a partner at Sadis & Goldberg LLP. "If people have adopted policies and procedures and try to live with them before they register, it will be less of a going concern."
The SEC tried to regulate the private pools of capital a few years ago, but a lawsuit overturned the rule.
Now, the agency has the power to impose such rules with the enactment of the Dodd-Frank financial reform bill in July.
Advisers to smaller private pools of capital would be required to supply the agency with some information such as the disciplinary history of the adviser and its employees, according to the SEC's plan.
As required by the Dodd-Frank bill, the SEC must craft a rule that will shift the oversight of thousands of smaller investment advisers to the states.
Investment advisers with more than $100 million in assets will be supervised by the SEC instead of advisers with $25 million in assets.
The SEC will decide whether to advance that proposal on Friday.
(Editing by Andre Grenon and Steve Orlofsky)