January 31, 2013
I’m pleased that this roundtable is taking place. Thanks to our staff for organizing the event and thanks to all of those participating.
I just want to make a quick comment here, and then I'll listen--and I'm sure become enlightened--for the rest of the day.
Here's the comment: I think there is a false argument out there, and perhaps a mistaken impression given, about some of this futurization--that is, swaps morphing into futures.
Let me explain: I've heard it suggested that this movement of some cleared swaps into the futures market is a bad thing--a not-so-good development--because the swaps world, and those involved in it, will suffer. I don't buy that. Here's why some futurization is not necessarily a bad thing, nor quite frankly, is it unexpected. Some market migration is, and has been, expected-- particularly when it comes to very standardized swaps that probably should have always been futures contracts in the first place. And remember, it was the lack of regulation in swaps—not futures—that fueled the market messes in 2008. So, I'm pleased that certain swaps are being given the light of day.
At the same time, I'd hate to see the swaps world being excessively eaten up by futures. In that regard, the best thing the Commission can do right now to avoid further futurization is to finalize the rule on Swap Execution Facilities (SEF's). Uncertainty about that rule is fueling much of the futurization anxiety and if we finalize it, the uncertainty--and a lot of anxiety--will be alleviated. You SEF folks are ready-go, and we just need to give you the rules of the road.
Finally, while I'm interested in hearing the concerns about futurization, I am more concerned about, a silent creeper. That is, the "swapification" of the futures markets. Specifically, I'm concerned that the conversion of certain standardized cleared swaps will be under-regulated--under-regulated--in the futures markets. It may be block rules or something else, but we need to be cautious about converting certain swaps to futures in an attempt to export the deregulated, opaque swaps trading model to these new futures markets. Let's be cautious about allowing lax oversight of these futures contracts, regardless of how they were treated before they were futurized.
I am open-minded about adjustments needed to prevent inappropriate futurization AND inappropriate swapification of the futures markets.
We can't have all of the same rules for futures and swaps. They are different. That said, to the extent we can have a more harmonious regulation of futures and swaps, that's a good thing in my judgment and will help fuel-inject a thriving, transparent and appropriately regulated futures and swaps markets.
I hope the discussion today will move us toward that goal.
Last Updated: January 31, 2013