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Exclusive: U.S. swap regulator close to deal on cross-border rules - source

Gary Gensler, chairman of the Commodity Futures Trading Commission, speaks to a reporter at the Sandler O'Neill + Partners, L.P. Global Exch
Gary Gensler, chairman of the Commodity Futures Trading Commission, speaks to a reporter at the Sandler O'Neill + Partners, L.P. Global Exch

By Douwe Miedema

WASHINGTON (Reuters) - The top U.S. derivatives regulator is within reach of a compromise over how its rules apply to foreign companies dealing with U.S. banks, a source close to the negotiations told Reuters.

Friday is the last day the Commodity Trading Futures Commission (CFTC) can decide on the issue, as a broad temporary relief for foreign companies expires. Having no rule in place would cause regulatory chaos and invoke the wrath of already critical politicians.

The issue has split the commission, pitting Chairman Gary Gensler against a fellow Democrat, Commissioner Mark Wetjen, who wants the agency to rely more on foreign regulators.

But the two were now close to a deal, the source said.

"It looks very positive, there's agreement in principle on most of the major issues," the source said.

"To (Gensler's) credit and to Mark's credit they were able to get in a room together over several days and we all knocked this out," the source added.

Still, important detail needed to be ironed out in the coming days, the source stressed.

Gensler has insisted foreign companies comply with the CFTC's new rules to prevent risk abroad from hitting America, while foreign regulators had said the agency should rely on similar rules being drawn up in Europe and Asia.

Without Wetjen's vote, it would be virtually impossible for Gensler to win the required three votes for his plan.

The stakes for a deal are high, with banks heavily lobbying against new rules to rein in the lucrative market, dominated by Wall Street banks such as Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co..

Big foreign banks such as Deutsche Bank AG, Credit Suisse Group AG and Barclays Plc fear they will have to deal with the cost of both U.S. rules and those from their home countries.

The CFTC's latest proposal will allow foreign banks some flexibility when trading with U.S. clients and remove some of the toughest regulatory requirements, two people briefed on the matter had told Reuters earlier this week.

The source declined to elaborate on what changes were made to the text to reach the deal.

"I think this will be a very well-received document. It's aggressive in some respects, but it's I think supported by a lot of really good public policy," the source said.

The CFTC is implementing many of the new rules the United States has drawn up after the 2007-09 credit meltdown, to make the $630 trillion derivatives industry safer, and prevent a repeat from costly bank bail-outs.

Separately, Gensler is also negotiating with the European Union about the issue, Reuters reported this week. A deal with Europe could give him a powerful bargaining chip to reach a deal within his own agency.

The issue has attracted huge political attention in the United States and abroad. Gensler has been repeatedly chided by members of the U.S. Congress over his aggressive stance, and foreign regulators have done the same.

Last month, for instance, a group of U.S. Senate Democrats expressed concern to Treasury Secretary Jack Lew about a lack of coordination between the CFTC and its sister agency, the Securities Exchange Commission.

Gensler had called for a vote on the issue on Friday, but it was far from clear until now whether the four commissioners - three Democrats and one Republican - would agree.

"Progress is being made and we are hopeful for a meeting on Friday," CFTC spokesman Steve Adamske said.

(Reporting by Douwe Miedema; Editing by Jeremy Laurence)

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