The top U.S. derivatives regulator urged closing a legal loophole for offshore hedge funds, warning it threatened to undo a deep overhaul of Wall Street after the credit meltdown. The Commodity Futures Trading Commission requires hedge funds to send their trades of complex financial instruments through clearinghouses, traffic control centers that stand between buyers and sellers. But because of the way another rule is worded, offshore hedge funds, such as those based in the Cayman Islands, can avoid the requirement, at least temporarily. "If we don't address this, the P.O. boxes may be offshore in places like the Cayman Islands, but the risk will flow back here," CFTC chairman Gary Gensler said in a speech. The loophole was created in December, when the CFTC issued a so-called exemptive order to give foreign companies broad relief from its rules, because it had not decided how those rules apply to companies abroad. The rule also exempted hedge funds registered in offshore jurisdictions
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