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SPEECHES & TESTIMONY

  • Statement on Support of the Dodd-Frank Rulemaking

    Chairman Gary Gensler

    October 1, 2010

    Statements for the record on each rule:

    IFR

    I support today’s Commission vote on the Interim Final Rule. This rule fulfills the Dodd-Frank Act’s requirement that those swaps executed prior to the bill’s enactment that have not expired by the date of enactment must be reported to a registered swap data repository (SDR) or to the Commission.

    Under this interim final rule, swap participants must preserve pre-enactment swap transaction data and report that data to the appropriate, registered SDR, once it is established, or to the CFTC. Since SDRs have not yet been established, the interim final rule does not require immediate reporting. The Dodd-Frank Act says that, within 90 days of passage, the CFTC has to tell swap participants where and how to report their pre-enactment swaps. To fulfill this requirement, we are asking swap participants to save their data so that they can report it in the future, after the Commission has promulgated reporting requirements and after SDRs are registered. This rule ensures that essential data relating to these swaps is preserved until the Commission puts out its final rules for swaps data reporting.

    DCO Rule

    I support the notice of proposed rulemaking on financial resources for derivatives clearing organizations. It is an important first step in fulfilling the requirements of the Dodd-Frank Act to have robust oversight and risk management of clearinghouses. I believe that the proposed rulemaking will reduce the potential for systemic risk in the financial markets. We’ve consulted with the Securities and Exchange Commission (SEC) and the Federal Reserve Board on this proposed rule. We also have ensured that these proposed financial resource rules are consistent with international standards in the newest draft CPSS-IOSCO standards. This is the first of probably four or five rulemakings that we will take up on clearing organizations. Other rules that we will take up in November and December will relate to other important aspects of clearinghouse core principles, including risk management.

    Today’s proposal also anticipates that, in accordance with the Dodd Frank Act, the Financial Stability Oversight Council will designate some regulated clearing organizations that we oversee as systemically important derivatives clearing organizations (SIDCOs). The proposal has enhanced standards for those SIDCOs. I look forward to the public’s comments on these proposals.

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    Governance

    I support the notice of proposed rulemaking on governance for derivatives clearing organizations (DCOs), designated contract markets (DCMs) and swap execution facilities (SEFs). This proposal advances the goals of the Dodd-Frank Act that clearinghouses and trading platforms have open decision-making and that their governance be protected from potential conflicts of interest. Such conflicts may arise with respect to determinations regarding the clearing and trading of swaps; access to such clearing and trading; and in the responsibilities of registrants for overseeing their members for compliance. Open governance is important to promoting competition amongst trading platforms as well as to lowering risk to the American public by ensuring that as many standardized swaps are cleared as are appropriate.

    The proposal has two important components. One is with regard to the functioning of the boards of directors and the inclusion of a sufficient number of public directors. This is similar, though we are asking some further questions, to what the Commission has adopted in the past with regard to exchanges.

    The second component is related to possible limits to the voting control of clearinghouses and exchanges. Working with the SEC, this proposal recommends no aggregate limits on such voting control of trading platforms but does propose a limit of 20 percent on any individual member. With regard to clearinghouses, the proposal does recommend an aggregate limit of 40 percent of voting control for certain entities, but also has another option. The second option places no aggregate limit if the voting ownership is more diverse, with no one member or named entity holding more than 5 percent. Importantly, the proposal also recommends that the Commission retain the authority in certain circumstances to grant exemptions to ownership limits.

    The governance proposal may have been the most discussed proposal today. I really want to express my appreciation to each of my fellow commissioners for their input and suggestions on this proposal in an effort to find the right balance. I look forward to hearing from the public through the public comment process so that we can best address the issues that Congress laid out in the statute, promoting the governance of registrants and protecting these organizations from conflicts of interest.

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    Last Updated: January 18, 2011



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