March 20, 2012
Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission (CFTC) to consider final 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 on the phone or watching the webcast.
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 25th open meeting on Dodd-Frank rules. We will consider a final rule on customer clearing documentation; timing of acceptance for clearing, or so-called “straight-through processing;” allocation of bunched orders; and clearing member risk management. Today’s rule is the result of four different proposals, each of which has benefited from broad public comment.
In 2008, the swaps market helped build up risk in the financial system that spilled over into the real economy, affecting businesses and consumers across America.
An important goal of the Dodd-Frank Act is to prevent such risks in the financial sector from again infecting the real economy, which as I have noted in the past, provides 94 percent of private sector jobs.
Today, we will consider a rule that helps broaden market access and promotes competition in the swaps markets. The rule also will help lower risk in these markets. If finalized, this rule will help commercial end users in the real economy.
I understand there is a considerable debate about the costs and benefits of our efforts under the Dodd-Frank Act to make the swaps markets more open, transparent and competitive. However, in any discussion about costs and benefits, we cannot forget that our country’s economy was driven to the brink of collapse as a result of built-up risk and leverage and the lack of transparency in the swaps market.
In the fall of 2008, the financial system and the financial regulatory system failed. Though there were many causes of the crisis, the unregulated swaps market helped concentrate risk in the financial system that spilled over to the real economy. The crisis led to eight million Americans losing their jobs, millions of families losing their homes and thousands of small businesses closing their doors.
Our country will benefit from financial reform. And in fact, the financial side of the economy also will benefit from greater transparency and competition in the derivatives markets. More importantly, investors, retirees, homeowners, and customers of pension funds, mutual funds, community banks and insurance companies all benefit from the lower costs and greater pricing information of more open and transparent markets.
One of the primary goals of the Dodd-Frank Act is to lower risk to the public by increasing the use of central clearing to promote the financial integrity of the markets and the clearing system.
Today’s rule an important step toward achieving these goals. It promotes broad access to central clearing, increases market transparency, supports market efficiency and bolsters risk management.
Specifically, the rule:
Establishes requirements for the documentation between an FCM and its customers and between a swap dealer and its counterparties;
Sets standards for the timely processing of trades that minimize the time between submission and acceptance or rejection of trades for clearing;
Requires bunched orders for swaps executed as a block to be immediately accepted into clearing and allocated into individual accounts later in the day; and
Strengthens the risk management procedures of clearing members to enhance market integrity.
As I’ve said all along, we aren’t working to complete these rules against a clock. We’re working to finish Dodd-Frank reforms in a thoughtful, balanced way, and in a way that carefully considers the costs and benefits of each rule. As such, we are continuing to work with the Securities and Exchange Commission on the entity definitions rule – a critical reform for the regulation of dealers – and we hope to take up this rule sometime soon.
The CFTC has completed 28 Dodd-Frank rules, potentially one more after today. We have made great progress on the congressionally mandated reforms that bring transparency and competition to the swaps market and lower the risks of this market to the real economy. I have confidence in the Commission and the CFTC staff that we will finish the remaining reforms this year for the benefit of investors, retirees, consumers and businesses in America.
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: March 20, 2012