May 10, 2012
Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission (CFTC) to consider a final rule 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.
Today is the 27th open meeting on Dodd-Frank rules. We will consider a final rulemaking on designated contract market (DCM) core principles.
I would like to thank Commissioners Sommers, Chilton, O’Malia and Wetjen for their significant contributions to the rule-writing process and the CFTC’s hardworking and dedicated staff.
Designated Contract Markets Rules
I support the final rulemaking on DCMs, which includes rules, guidance and acceptable practices. It advances important Dodd-Frank transparency reforms. The Dodd-Frank Act squarely addresses the historically opaque swaps market though its strong transparency provisions. A critical element is pre-trade transparency – requiring standardized swaps between financial firms – those that are cleared, made available for trading and not blocks – to be traded on exchanges, such as DCMs, swap execution facilities (SEFs) or foreign boards of trade (FBOTs). When markets are open and transparent, prices are more competitive, markets are more efficient and liquid, and costs are lowered for companies and their customers.
DCMs have long demonstrated the value of open and competitive trading. DCMs, for the first time, will be able to list and trade swaps, helping to bring the benefit of pre-trade transparency to the swaps marketplace.
In addition, the Dodd-Frank Act incorporated the previously existing eight statutory designation criteria for DCMs into the DCM core principles and expanded the principles from 18 to 23. The final rulemaking the Commission will consider today conforms to the Dodd-Frank transparency reforms.
The final rulemaking benefits from extensive public comment and provides exchanges rules, guidance and acceptable practices on complying with Dodd-Frank's 23 core principles. In many instances, we're codifying industry practices that the Commission has observed and found appropriate to comply with these core principles. While preserving a principles-based regime, these regulations will provide greater legal certainty and transparency to DCMs in determining their compliance obligations, and to market participants in determining their obligations as DCM members, and will facilitate the enforcement of such provisions.
The final rulemaking is consistent with the core principles-based regime of the Commodity Exchange Act. It provides each DCM with the flexibility to employ additional measures to address core principle requirements.
As an example, the final rulemaking requires DCMs to put in place effective pre-trade risk filters, including pauses and/or trading halts to address extraordinary price movements that may result in distorted prices or trigger market disruptions. The rulemaking, though, also recognizes that pauses and halts comprise only one category of risk controls, and that additional controls may be necessary to be put in place by exchanges to reduce the potential for market disruptions. The final guidance included in today's rulemaking lists that exchanges may possibly implement price collars or bands, maximum order size limits, and message throttles.
Today’s rule does not yet finalize the Commission's proposal relating to core principle 9 – which requires DCMs to provide an open, competitive and efficient market and mechanism for transactions that protects the price discovery process of the DCM’s central marketplace. I expect the Commission to consider a final rule on this matter when it takes up the SEF rule this summer. The additional time will allow the Commission to more fully analyze the many public comments on these provisions, including comments on the implications of exchange of futures for swap transactions, or so-called “EFS transactions,” in relation to the transparency reforms of Dodd-Frank, as well as the requirement for non-discriminatory open access to clearing.
Before turning to my fellow Commissioners, I'd like to address a few other items that the Commission has been considering and will take up in the near term.
We recently completed the joint rule with the Securities and Exchange Commission (SEC) to further define the term “swap dealer.” We are turning shortly to the rule to further define the term “swap.” The staff at the CFTC has made very good progress in putting forth to the Commission a final rule for our consideration. In an effort to leverage resources and complete this rulemaking, I’m pleased that we’ve also arranged for a staff member from the Office of Information and Regulatory Affairs to supplement the excellent work of the CFTC staff with technical assistance, particularly with respect to the consideration of costs and benefits. In considering the costs and benefits of financial reform, I believe the Commission should take into account the overall benefits to the American public and market participants of increased transparency, lower risk and help to protect against another crisis. I don't know that anyone needs to be reminded, but eight million Americans lost their jobs in that crisis. I believe Commissioner Chilton made a similar point in a speech he made earlier this week.
This morning, the Commission approved a proposed exemptive order regarding the effective dates of certain Dodd-Frank provisions. It had originally been calendared for consideration at today's meeting. I have a longer statement of support for the record, but most importantly the proposed exemptive order provides additional relief through December 31 of this year. Furthermore, it addresses comments from market participants requesting clarity regarding the transactions in and clearing of agricultural swaps, as well as comments from unregistered trading facilities that offer swaps for trading.
In addition, the Commission will soon complete a final rule establishing data recordkeeping and reporting requirements for pre-enactment and transition swaps, collectively called “historical swaps.” This rule promotes transparency by helping to give regulators a complete picture of the swaps market, including data on swaps in existence at the time of the Dodd-Frank Act’s passage.
I also anticipate seeking public comment in the near term on an exemptive order regarding certain contracts traded on Regional Transmission Organizations, as well as the interpretive guidance on the cross-border application of the swaps provisions of Dodd-Frank.
Last Updated: May 10, 2012