September 8, 2011
Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission (CFTC) to consider 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.
I would like to thank Commissioners Dunn, Sommers, Chilton and O’Malia for their significant contributions to the rule-writing process. I also want to thank the CFTC’s hardworking staff – they are working day, night and weekends to complete these rules.
During today’s meeting, the Commission will consider two proposed rules regarding the implementation schedule for swap transaction compliance. We also will consider an International Organization of Securities Commissions report on Principles for the Regulation and Supervision of Commodity Derivatives Markets.
September 11, 2001
This week, it is appropriate for us to remember September 11, 2001. Ten years ago, the CFTC’s New York office was on the 37th floor of the World Trade Center’s North Tower. That morning, 56 members of the CFTC staff were in harm’s way when the planes hit the towers. Thankfully, each member of our staff made it out of the area safely. But far too many people did not, and we will all take a moment on Sunday to remember the fallen and to praise the heroes who saved lives.
The response from the other CFTC offices was to rally around our New York colleagues in the aftermath of the attacks. Many of those staff members still work in our New York office. Remarkably, the CFTC’s seal from the North Tower was recovered at Ground Zero in 2002 and now is displayed at our New York office. We also commend our many friends in the New York futures industry, which was deeply affected by the attacks. Through devastation and personal losses, the industry worked together night and day to quickly restore market operations.
Turning the Corner
Today is our 19th open meeting on Dodd-Frank rules. We largely completed our proposal phase this spring, the CFTC’s first major step in implementing financial reform. This summer, the Commission turned an important corner, the second major step in the reform process, as we began finalizing rules to make the swaps marketplace more transparent for participants and safer for taxpayers. To date, we have finished 12 final rules, and we have a full schedule of public meetings this fall. The rules we will consider today are about the timing for compliance with new rules. Compliance represents the third major step in our efforts to make financial reform a reality and to protect the American taxpayer.
I’d like to take a moment to discuss what Dodd-Frank Title VII rules we may consider between now and the end of the year, and those rules that we are more likely to take up in the New Year. A more complete list will be available on our website and attached to this statement. Let me start by saying that we are focused on considering these rules thoughtfully – not against a clock. No doubt, as this is a human endeavor, there will likely be changes to this outline down the road. We also will continue to reach out broadly to other regulators, both here and abroad, for their input as we consider the many thousands of comments on these rules.
The next two items in the queue for the CFTC to consider are rules related to clearinghouse core principles and position limits. In the last quarter of 2011, we also hope to consider final rules on entity and product definitions, both of which are joint rules with the SEC. In addition, we hope to consider final rules on swap data recordkeeping and reporting; real-time reporting; and regulations for trading platforms, such as Designated Contract Markets and Foreign Boards of Trade – all of which will help make the swaps market more open and transparent. We are looking to consider external business conduct rules and internal business conduct rules related to risk management, supervision, conflicts of interest, recordkeeping, and chief compliance officers. We also anticipate seeking public input on the application of Dodd-Frank’s Section 722(d).
Much like we did on July 14, this fall we also will consider further exemptive relief from the application of Dodd-Frank’s Title VII requirements. I’ve already directed staff to draft recommendations, with the relief appropriately tailored -- for instance, taking into account the possible completion of entity and product definition rules.
Let me also highlight a few of the rules that we expect will be taken up after the first of the year. As part of the effort to make the swaps market more open and transparent, we hope to take up the final rules related to swap execution facilities. The agency has been working closely with other regulators, both domestic and international, on capital and margin, but I expect we will take up these final rules next year. We also are looking to finalize rules on documentation, straight-through trade processing, client clearing, and segregation for uncleared swaps.
In addition, I would like to take a moment to talk about the process for the clearing mandate determinations. In July, the CFTC finalized a rule on the process for review of swaps for mandatory clearing. It will be effective September 26. Under this congressionally mandated process, the Commission has 90 days to review a clearinghouse’s submission and determine whether the swap is required to be cleared. Though much of the timing will be decided by the clearinghouses, it is likely that they will not begin to file submissions until later this fall or in the winter. Once these submissions come in, Commission staff will begin to process them.
Proposed Rules: Implementation Phasing
Now, I will turn to today’s rules on what we call “implementation phasing.” This relates to the timeline under which various market participants will bring their swap transactions into compliance with new regulatory requirements, including mandatory clearing and trading, as well as swap dealer documentation and margining requirements. Recognizing that some market participants may require more time than others to comply, these proposed rules are part of our effort to help ensure they can adequately plan for oversight of the swaps market.
Commission staff has reached out broadly on this topic, including holding a two-day roundtable in May with the Securities and Exchange Commission (SEC). We invited public comments on implementation phasing, and the Commission has received very constructive comments.
The first rule proposes a schedule for phasing in compliance with the swap clearing and trading mandates. Market participants would be required to comply with a Commission-issued clearing mandate within three, six or nine months, depending on the swap’s counterparties. This timeline would begin after the effective date of the mandatory clearing determination, which I just discussed. In addition, the proposal states that no market participant would be required to comply with the clearing mandate before the Commission finalizes certain key rules. So market participants will have time to make plans for compliance.
Market participants also would have at least 30 days after a swap is made available for trading on a swap execution facility or designated contract market to comply with the trading requirement.
The second proposal is an implementation schedule for previously proposed rules on swap trading documentation requirements and margin requirements for uncleared swaps. The proposed compliance schedule would apply to swap dealers and major swap participants that are registered with the Commission, and would allow for a three, six or nine-month compliance timeline, depending on a swap dealer’s counterparty.
The Commission is seeking public input on these proposed rules, which apply to core areas of Dodd-Frank reform. They are designed to smooth the transition from an unregulated market structure to a safer market structure. More information regarding these proposals will be available in the fact sheets and Q&A documents on our website.
The two proposals we are considering today are not the only opportunities that the Commission will have to phase the implementation of final rules. As we progress in finishing major rules, we will continue looking at appropriate timing for compliance, which balances our desire to protect the public while providing adequate time for industry to comply with these new rules.
When all of our Dodd-Frank rules are completed, I believe that it is appropriate that the Commission take a step back at the right time in the future and carefully evaluate the new regulatory landscape as a whole – and how it is actually working. This is another part of our efforts to thoughtfully implement the reforms in the Dodd-Frank Act.
But until the CFTC completes its rule-writing process and implements and enforces these new rules, the public remains unprotected. That’s why the CFTC is working so hard to ensure that swaps-market reforms promote more open and transparent markets, lower costs for companies and their customers, and protect taxpayers.
Before we hear from the staff on the rulemakings that we will consider today, I will recognize my fellow Commissioners for their opening statements.
Last Updated: September 9, 2011