Seeking input & funds, CFTC hard at work on new Dodd-Frank Wall St reform rules

By Jon H. Harsch

© Copyright Agri-Pulse Communications, Inc.

Washington, Oct. 27 - Racing to meet financial reform deadlines set by Congress, the Commodity Futures Trading Commission (CFTC) is asking for help. First, the CFTC wants the public to submit comments on new rules being churned out by its 30 special rule-writing teams. Second, the CFTC is signaling that after loading the CFTC with massive new responsibilities under the Dodd-Frank Act, Congress needs to give the CFTC more money and more staff to handle its greatly expanded workload.

In a third CFTC public meeting on new rules Tuesday, CFTC Chair Gary Gensler announced the next public meeting will be Nov. 10, followed by four more with the goal “to complete the proposal stage by mid-December.” Promising “a very busy next seven weeks,” Gensler noted that the CFTC has already published two final rules along with proposing 11 other rules and providing three advanced notices of proposed rules. But he said this work done so far is “only a quarter of the proposal stage of rulemaking.”

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Gensler said the Dodd-Frank law signed in July “gives the Commission the broad new ability to effectively combat fraud and manipulation” and that the CFTC proposed anti-manipulation rulemaking “promotes fair and efficient markets, for the first time allowing the Commission to protect against fraud-based manipulation.”

On disruptive trading practices rulemaking, Gensler explained that the CFTC wants interested parties to comment on “18 questions, the answers to which will inform moving forward with a proposed rule.” With a roundtable planned for Dec. 2 on the issue, he said “I am particularly interested in hearing from the public on algorithmic trading.”

CFTC Commissioner Jill Sommers said Tuesday that as the CFTC works hard to implement Dodd-Frank's “massive regulatory restructuring,” the rule writing currently raises “more questions than answers, and the questions surrounding most issues are enormously complex.” Concerned about how to define swap dealers, she warned that the definition “must encompass multiple models and be flexible enough to allow several ways to buy and sell contracts.”

Sommers also warned that in the sensitive area of position limits, the CFTC must write rules which avoid “the danger of driving markets overseas with inconsistent regulations.” She said to reach the goal of “establishing comprehensive regulation of the OTC swaps markets by July 2011,” as required by Congress, “We need input from the public to get it right, so please participate in the comment periods.” She said she is fully committed “to do all I can to make sure that we do not get it wrong and that our markets continue to thrive.”

Commissioner Scott O'Malia also voiced concerns, saying that in the case of new Investment of Customer Funds rules, “I am quite concerned that the proposed rules are overly prescriptive.” On new anti-manipulation rules, he said that “it is critical to remember that our responsibility is broader than simply responding to the last crisis. Going forward, prevention and deterrence must be the twin goals that are furthered by the anti-manipulation and disruptive trading practice rules.” Echoing his fellow commissioners, he concluded by appealing to the public to “provide input on these complicated rulemakings to ensure that everyone is in agreement as to the boundaries of fair play.”

Commissioner Michael Dunn focused on “the resource intensive re-engineering the CFTC will be going through to provide the regulatory framework to implement the many new responsibilities under Dodd-Frank.” He said he's “very concerned about the CFTC's budget situation and possible attempts to thwart implementation of Dodd-Frank by cutting off funding for this agency.”

Dunn said that if adequate funding and staffing are not provided by Congress, the results could include “greater systemic risk” and long waits before new products can be approved for trading. He concluded with two additional warnings:

  • “My hope is that the cost of doing business in the United States, due to inadequate funding of the CFTC, does not push trading into less expensive global markets.”

  • “Lastly, a principles-based regulatory regime only works if the regulator has the staff necessary to ensure that its regulatees are adhering to the principles. Without sufficient staff to conduct proper oversight, the CFTC may need to write more prescriptive rules that rely more heavily on burdensome reporting requirements. Again, this will undoubtedly be very costly for the industry and market users.”

To read the CFTC's proposed new rules and to submit your comments on these proposals, go to:

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