January 11, 2012
Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission (CFTC) to consider final and proposed rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). I’d like to welcome members of the public, market participants and members of the media, as well as those listening to the meeting on the phone or watching the webcast to our first Commission meeting in 2012.
I would like to thank Commissioners Sommers, Chilton, O’Malia and Wetjen for their significant contributions to the rule-writing process. I also want to thank the CFTC’s hardworking and dedicated staff.
Today is the 23rd open meeting on Dodd-Frank rules. We will consider three final rules:
• Segregation of customer funds for cleared swaps;
• Registration of swap dealers and major swap participants; and
• Business conduct standards for swap dealers and major swap participants with counterparties, what we’ve come to call external business conduct.
In addition, we will vote on a proposed rule on proprietary trading prohibitions and restrictions, commonly known as the “Volcker Rule.”
And lastly, we’ll be voting on an order delegating certain registration authorities to the National Futures Association.
Today’s segregation rule is an important step forward in protecting customers and reducing the risk of swaps trading. Segregation of customer funds is the core foundation of customer protection in the commodity futures and swaps markets. The rule further protects customers by ensuring that futures commission merchants (FCMs) and derivatives clearing organizations (DCOs) segregate customer collateral supporting cleared swaps. It prohibits clearing organizations from using the collateral of non-defaulting, innocent customers to protect themselves and their clearing members. For the first time, customer money must be protected individually all the way to the clearinghouse.
We received a tremendous amount of public input on this rule, including through two roundtables, as well as through comments on an advanced notice of proposed rulemaking and a proposal. This rule builds on customer protections included in the clearinghouse core principles rule we finalized in October requiring DCOs to collect initial margin on a gross basis for their clearing members’ customer accounts.
We are continuing to gather thoughtful input as to how we might build upon today’s segregation rule to further protect customers. I have asked staff to carefully analyze proposals from market participants and to make recommendations on further safeguarding client collateral on an individual basis. In addition, I have requested that staff report to the Commission on whether it would be appropriate to eventually consider segregation protections for futures that are similar to those we hope to adopt today for swaps. And I have asked staff to put together public roundtables on these potential customer protection enhancements.
The Commission has made significant progress on three critical aspects of reform: bringing transparency to the swaps marketplace, lowering risk to the public and enhancing market integrity. The registration and external business conduct rules we will consider today are the first steps we will take to regulate swap dealers, a fourth critical aspect of reform.
The registration rule will allow the Commission to monitor swap dealers and major swap participants for compliance with CFTC rules, which will help protect market participants.
The external business conduct rule will establish and enforce robust sales practices in the swaps markets.
The Commission will consider a number of additional final rules this year on regulating dealers.
I support putting out to public comment the Volcker rule proposal, which is consistent with the joint rule proposed by other financial regulators last fall. Dodd-Frank amended the Banking Holding Company Act to provide the Commission authority to implement Volcker Rule requirements for the entities for which we are the primary financial regulator. I know the proposal will get a lot of comments, and I look forward to the public input.
I’d like to take a moment to discuss a possible schedule for considering final Dodd-Frank Title VII rules this year. A more complete tentative schedule will be available on our website. In addition to today’s three rules, in the first quarter of 2012, I am hopeful we can finalize jointly with the SEC both entity and product definitions. Other potential final rules for consideration are: the end-user exception, certain internal business conduct rules and core principles for Designated Contract Markets.
I hope we will consider the reproposal of the block rule and that the Commission will explicitly seek public input on the extraterritorial application of Title VII of Dodd-Frank.
I also anticipate seeking public comment on an exemptive order regarding certain contracts traded on Regional Transmission Organizations and an exemptive order for Rural Electric Cooperatives and Municipal Power Authorities.
As with the first 22 final rules, the CFTC is working to complete the remaining rules thoughtfully – not against a clock. We have benefited from significant public input, including 27,000 comment letters, 1,200 meetings and 14 roundtables, with more roundtables scheduled.
Progress on Rules
Before I close, I would like to thank the staff and my fellow commissioners for all the progress we’ve made together so far. In brief:
• To promote transparency, we have completed rules requiring large traders to give the CFTC data about their swaps activities and rules establishing swap data repositories (SDRs). We also finished a rule on the specific swaps data that will be reported to SDRs. And we completed real-time, public reporting rules for swaps.
• To lower risk to the public, we established risk management and other regulatory requirements for derivatives clearing organizations. The Commission also enhanced customer protection regarding investment of their funds.
• To enhance market integrity, we finished a rule giving the Commission more authority to effectively prosecute wrongdoers who recklessly manipulate the markets, and we can reward whistleblowers for their help in catching misconduct in the financial markets. That office is now fully operational, and I want to welcome Vincente Martinez to the CFTC. We also finalized position limits rules that limit aggregate speculative positions in the futures and swaps markets.
These final rules represent a substantial down payment on making the marketplace safer and more transparent. When markets are open and transparent, prices are more competitive, markets are more efficient, and costs are lowered for companies and their customers.
I’ll conclude by saying the financial crisis of 2008 had real costs for the economy and the American public – 8 million jobs were lost and millions of Americans lost their homes. Until we complete the Dodd-Frank swaps market reforms, the public remains at risk.
Before we hear from the staff on the rules that we will consider today, I will recognize my fellow Commissioners for their opening statements.
Last Updated: January 11, 2012