April 30, 2013
I thank you, Scott, for your leadership in bringing this committee together. It’s been a great effort of yours. You’ve done an excellent job throughout the years, and today’s meeting couldn’t come at a more timely moment.
I want to thank the Technology Advisory Committee as well. Now, why is it such a timely moment?
For two reasons – one, we’ve had a very real change since your earlier meetings. We’ve had a paradigm shift. The swaps market is moving into implementation of Dodd-Frank reform. This means we have real-time reporting. We have 76 swap dealers registered. We have clearing that’s being phased in between March and September of this year. And we have reporting to the swap data repositories already underway.
But secondly, as Scott said and has been reported in the press, we live in a time that technology is constantly changing. This is generally a good thing. Innovation in our society is a good thing – whether it’s in the markets, in health care, in day-to-day life. All one has to do is look in the kitchen to see how wonderful technology is, and how much easier things are today than 40 years ago.
There is a paradigm shift in the swaps market as it has become more transparent and we have central clearing, but there also is a continual shift – one might say paradigm shift as well – with technology.
We need to adapt and adjust our rules to make sure that the market ultimately benefits from transparency and that there is oversight of these markets.
Regarding the panels we’ll see on data, there has been a full commitment since 2009 from the G-20, the 20 leading nations and jurisdictions around the globe, to gather data into trade repositories so that regulators, central bankers, and finance ministers can get a sense of this important market, the $600 trillion swaps marketplace.
Here in the US and in a number of countries we now have data repositories registered and reporting that information. I think it’s natural that we have some growing pains. I’m glad that we’re going to have two panels discussing this topic today.
I think it’s clear what the regulators and the finance ministers around the globe were saying. They wanted an accessible place to go to sort and search data. Congress put into the statute that it be directly, electronically accessible to the regulators. That means it’s not a report or a summary, but a regulator can go in and see trade by trade. We need to be able to aggregate it by counterparty, by reference rate, by trade date and use modern technology to do that.
We’re not there yet. This is natural growing pains. But I think today’s process will help, and maybe a guidebook will help as well.
We’re also going to hear further about customer protection. We have put out rules, working with the self-regulatory organizations, like CME and the NFA, about direct electronic access to bank accounts and custodial statements. I look forward to hearing from you all today on how that’s working so far. Our rules haven’t been finalized, but you’ve started, with the self-regulatory organizations, to do that. Post the events of last year, particularly at Peregrine, this is a critical issue.
I’m glad that Scott has put a panel on with regard to last week’s events. As technology changes, our financial system and the rules in place need to be resilient. As sure as there were bad actors putting out false information 100 years ago into the marketplace -- all we need to do is read about the late 19th century and the stories about false information and runs in the markets of that era -- it’s sure that 100 years from now people will try to put out false information into markets. They will use new technology, things that will make Twitter and Facebook look old style.
But I think as regulators we need to be resilient as well, and to continue to update what we do to promote transparency and protect the markets -- and make sure that false information is not put out in the markets. That’s one of the things that we’re doing with regard to LIBOR and Euribor.
I think we do need to finalize a concept release that we’ve been working on for many moons here at the CFTC. My hope is that we could put out a concept release that I’ve referred to as testing and supervision, which is about risk controls and system safeguards for automatic trading environments. Last week’s events remind me once again. I’ve been chatting with fellow commissioners. I think we will do that in the next month to two months, put it out and get the benefit of public comment.
Also, I think we need to finalize something that sounds like it’s in the weeds, but it’s called ownership and control reporting. We proposed it, and it’s now in front of my fellow commissioners. I think the staff has done an excellent job – so that we can know the actual owners and controllers of futures accounts in a similar way to what’s in the swap data repositories for swaps.
As a final note, we do need more resources here at the CFTC. If we don’t have the technology resources to keep up, then all the data in data repositories, all that’s being done out there in the marketplace, it’s going to be hard for us to be nimble.
I thank you, and I thank Scott for putting this together.
Note: this transcript was edited slightly for clarity.
Last Updated: April 30, 2013