April 12, 2011
Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission to consider issuance of a proposed rulemaking under the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding margin requirements for uncleared swaps for swap dealers and major swap participants.
The Commission will consider the proposed rulemaking relating to conforming amendments to current CFTC regulations that was advised on today’s meeting agenda at a later meeting.
Before we hear from the staff, I’d like to thank Commissioners Mike Dunn, Jill Sommers, Bart Chilton and Scott O’Malia for all their thoughtful work to implement the Dodd-Frank Act.
I’d like to welcome members of the public, market participants and members of the media to today’s meeting, as well as welcome those listening to the meeting on the phone or watching the live webcast. We look forward to receiving public comments on the proposed rule we are considering today. The rule, as well as a fact sheet and “Questions and Answers” document, will be posted on our website shortly. This is the thirteenth public meeting to consider Dodd-Frank rulemakings.
The rulemaking team that will present today worked very hard with our Commissioners and our fellow regulators on the rulemaking that the Commission is considering this morning. They will present thoughtful recommendations for how the Commission can best comply with its statutory obligations under the Dodd-Frank Act.
I intend to support the proposed rulemaking that the Commission will consider today. Margin requirements for swaps that are not cleared between financial entities help ensure the safety and soundness of swap dealers and major swap participants.
The proposed rules would address margin requirements for uncleared swaps entered into by nonbank swap dealers or major swap participants. The prudential regulators today are proposing margin rules for the dealers that they regulate. For trades between swap dealers (or major swap participants), the rules would require paying and collecting initial and variation margin for each trade. For trades between swap dealers (or major swap participants) and financial entities, the rules would require the dealer (or major swap participant) to collect, but not pay, initial and variation margin for each trade, subject in certain circumstances to permissible thresholds. The proposed rule allows thresholds for margin for financial entities where they are subject to capital requirements established by a prudential regulator or a state insurance regulator and they are using their uncleared swaps to hedge or mitigate risk of their business activities.
The proposed rule would not require margin to be paid or collected on transactions involving non-financial end-users hedging or mitigating commercial risk. Congress recognized the different levels of risk posed by transactions between financial entities and those that involve non-financial entities, as reflected in the non-financial end-user exception to clearing. Transactions involving non-financial entities do not present the same risk to the financial system as those solely between financial entities. The risk of a crisis spreading throughout the financial system is greater the more interconnected financial companies are to each other. Interconnectedness among financial entities allows one entity's failure to cause uncertainty and possible runs on the funding of other financial entities, which can spread risk and economic harm throughout the economy.
CFTC staff worked very closely with prudential regulators to establish initial and variation margin requirements that are comparable to the maximum extent practicable.
Before today’s meeting, the Commission separately voted to propose rules establishing swap data recordkeeping and reporting requirements for swaps entered into prior to the enactment of the Dodd-Frank Act and to swaps entered into after the enactment but before final rules become effective. The proposed rule provides clarity concerning what records must be kept and what data must be reported to swap data repositories with respect to these historical swaps. The rule proposes limited recordkeeping requirements for counterparties to historical swaps. For swaps in existence on or after the date of publication of the proposed rule, counterparties would be required to keep records of specified, minimum primary economic terms for the swaps.
Before we hear from the staff, I will turn to my fellow commissioners for their opening statements.
Last Updated: April 12, 2011