CFTC completes proposed swaps rules, Gensler invites more stakeholder comment

By Jon H. Harsch

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, April 28 - Derivatives market stakeholders will have an additional 30-day comment period to critique the nearly complete package of financial reform proposals wrapped up by the Commodity Futures Trading Commission (CFTC) Wednesday in its 14th public rules-making meeting. CFTC Chair Gary Gensler said in the meeting that “the Commission has promulgated rules covering all of the areas set out by the [Dodd-Frank] Act for swaps regulation, with the exception of the Volcker Rule, for which the Act set a different timeline.”

Commodity Futures Trading Commission Chair Gary Gensler at Wednesday's rule-making meeting. Photo: Agri-Pulse.

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Clearly pleased with progress on the new rules, Gensler said that “With the substantial completion of the proposal phase of rule-writing, the public now has the opportunity to review the whole mosaic of rules. This will allow market participants to evaluate the entire regulatory scheme as a whole.” The additional 30-day comment period will both give the public another chance to offer suggestions after seeing the entire package and give the CFTC another opportunity to revise the final rules. Gensler specifically asked stakeholders to “comment about potential compliance costs as well as phasing of implementation dates to help the agency as we go forward with finalizing rules.”

Commissioner Michael Dunn said he will “rely heavily upon the comments that we receive from the public in forming my opinions on the final rules.” He said he's particularly interested in finding ways to make the final rules “more principles based, and less prescriptive or restrictive.”

Commissioner Jill Sommers, the lone dissenting vote on three CFTC proposed rules Wednesday, told the Electric Utility Consultants Conference on Tuesday that she remains concerned about “regulatory over-reach.” Warning of new “regulatory burdens” that will apply to swap dealers and major swap participants, she said “The CFTC should not seek to impose them lightly. Nor should we expend our scarce resources overseeing activity that is not systemically important.” She also challenged the CFTC's proposal for setting position limits on physical commodity derivatives. She said due to the lack of data on the size of the swaps markets and the risk of driving business overseas, “I do not believe that we are in a position to set effective limits.”

At the Tuesday meeting, Sommers charged that “the process for issuing proposed rules was rushed and in my view, it was guided by meeting the tight deadlines that were set by the statute . . . There was often insufficient time for us to fully consider the implications of all aspects of some of the proposals, particularly when we were getting provisions the night before the vote and sometimes on the morning of a vote.” She noted that “we have issued a number of proposals in which at least three commissioners have voiced concerns regarding the possibility of unintended consequences.” Urging a much more deliberative process for considering final rules “guided by policy and not by deadlines,” Sommers warned that “While there is room for error when issuing proposed rules, there is no room for error when issuing final rules.”

Commissioner Bart Chilton challenged Sommers' go-slow approach. He explained that “I don't think that it was possible for us to get these rules right immediately out of the gate . . . The reason that we put them out in my view, is that we needed to get comments to further fine-tune the rule.” He added that “I think the deadlines that Congress passed are important deadlines for us. I think that the urgency that existed last year when Congress passed the bill, the president signed it, that urgency exists still today and there are dangers out there in the OTC world that we've got to get a handle on with these rules and regulations.”

Chilton agreed it's important to get the final rules right but said “I think there are some out there that want to sort of run out the clock, and I'm not talking about anyone in this meeting or at the CFTC, but I think some, and many of these people are folks who opposed the bill to begin with, really want to run it out until maybe after the next presidential election, maybe consumers will not be as hot on financial reform then.”

For information on the Dodd-Frank financial reform rules, with a link to the law, click HERE. To submit comments on proposed rules or read submitted comments, click HERE.

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