June 17, 2011
Thank you for the invitation to be with you today. I especially thank Judith Hardt, who as you know is a great host.
It is also good to be here with members of the European Parliament. We had some good conversations yesterday, and I appreciate the remarks just made by Werner Langen.
Harmonization of global regulatory reforms is a key issue, and will continue to be so for the foreseeable future. In the U.S., our law has been passed and we are building the rules that go along with the new law. Contrary to what some have suggested, the action that the CFTC took earlier this week, to provide some certainty to market participants, is not faltering on the regulatory reform front. In fact, it is exactly because we are being thoughtful and deliberate that we are allowing some leeway to build thoughtful and appropriate rules to accompany the new law. You see, the new law takes effect in July, but the final rules have not all been crafted. What that means is that those impacted directly by the law would have been, theoretically at least, obliged to comply. But, comply with what? We haven't provided the actual rules that are needed to instruct market participants, exchanges, and others what exactly they should be doing.
Should we have done the final rules already? Yes. But, we had a learning curve at the agency. I had a learning curve. We didn't know enough about how this new and very large over-the-counter (OTC) market operates. Even today, we don't know how large it is. We currently oversee roughly $5 trillion in annualized trading. We will, with the inclusion of OTC trading, oversee hundred of trillions more, but still, today, we have no way of truly quantifying that amount. There, of course, is part of the problem. These were, and today still are, dark markets. We are starting to get a visual on them, but it is slow to gain focus. So, we didn't know enough and our initial proposals didn't hit the mark as directly as one would have hoped. But, rather than go forward with less than appropriate rules, we are now ensuring that we get them right. Better right than fast. This is the reason why we have given ourselves until the end of the year to conclude.
This leeway shouldn't be seen by anyone as slowing our work. In fact, we need to be putting the pedal down and making up for lost time here.
Finally, I'll mention my thoughts about global harmonization. There is a great movie, although I think it was less seen in the E.U. because it deals with the sport of baseball. The movie features Kevin Costner and is called "Field of Dreams." In the movie, which takes place on a farm in rural Iowa, Kevin's character, Roy, hears a voice from the corn field which says, "If you build it, they will come." The voice wants Roy to build a baseball diamond, and he does with miraculous results. Rent the movie. That phrase, "If you build it, they will come," is sort of what I had thought about global regulatory reform and harmonization. I have thought that if the E.U. and the U.S. built reforms, since we account for roughly 70 percent-plus of the financial market transactions in the world, that others around the world would come—that they would join us. I still think that will eventually take place, that if we build it, they will come. However, recent news stories and statements (particularly from Asia) would make one question the pace or even desire to see regulatory reforms. For example, earlier this week I was on a panel in Brussels where another panelist, from the China Securities Regulatory Commission, seemed reluctant, at best, to see a need for certain regulatory reforms. I'm not picking on China. They have every right to do what they think is best. It just seems to me that we don't want trading to migrate to the least regulation nation—those with the thinnest of rule books.
In fact, what I think those in the U.S., and perhaps the E.U. (although you all know better than I), is that we look at regulatory reforms as actually giving us a competitive advantage. Traders, exchanges and regulators alike want efficient and effective markets. The question is simply how to balance the rules in the most appropriate fashion.
Thank you again for the opportunity to be with you, to learn from you, and to understand better, how we go forward in this global financial world.
Last Updated: June 20, 2011