$648 Trillion Market Drags Feet As Deadline Nears

NEW YORK ( TheStreet) -- The $648 trillion over the counter derivatives market will be required to conduct a portion of its trades through a standardized channel--a process known as "central clearing"--by December, but many large players in the industry are in no hurry to comply with the new rules, according to a panel of industry representatives that spoke at a Futures Industry Association conference held in New York Thursday.

While Wall Street has become expert at convincing regulators to delay implementation of rules stemming from the landmark 2010 Dodd Frank Act, Jeffrey Jennings, global head of listed derivatives at Credit Suisse ( CS) believes regulators at the Commodity Futures Trading Commission (CFTC) are aiming a "Decemberish-type start date," though they haven't given specifics.
CFTC Chairman Gary Gensler is charged with implementing the new rules.

"Every conversation I have with every CFTC commissioner and every staff member still leads me to believe despite the challenges that will pose, for some subset of market participants--and it's probably going to be a pretty big subset of market participants--and for some subset of products--it's probably going to be wider than what we had expected previously--its going to start about the end of this year," Jennings said.

A call to a CFTC spokesman was not returned.

Despite this timetable, Jennings says "there are some very sophisticated very large very complex institutions that may not be as far along on the preparation cycle as you would expect."

This is a problem, the panelists say, because adoption of central clearing is a lengthy process "unfortunately" providing plenty of work for attorneys, says BlackRock ( BLK) global head of trading Richard Prager.

Cost appears to be a big reason companies are dragging their feet.

"I'll never forget the face of our traders the first time they did the trade," says Prager. "It wasn't the complexity. It wasn't like 'How does this work?' It wasn't like, 'Okay, I'm going to get operations on the phone to hold my hand.' It was like, "Look at these fees! This is ridiculous."

Prager says BlackRock has been "an early adopter" of central clearing, because it feels urgency to do so for risk management purposes more than because regulators are pushing for it.

Laurent Paulhac, managing director at CME Group ( CME), a big central clearer, acknowledges that costs are a major issue for new clients. However, he warns, 'it is time for them to pull the trigger because we're in May right now. Pretty soon it's going to be Q3 and there's going to be a bit of a jam."

-- Written by Dan Freed in New York.

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