December 5, 2011
Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission (CFTC) to consider final and 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 Sommers, Chilton, O’Malia and Wetjen for their significant contributions to the rule-writing process. I also want to thank the CFTC’s hardworking and dedicated staff – they are working day, night and weekends to complete these rules.
Today is our 21st open meeting to consider Dodd-Frank rules, and I’d like to welcome Commissioner Wetjen to his first open meeting. Today, we will consider two final rules:
• The investment of customer funds, and
• The registration process for foreign boards of trade (FBOT)
We also will consider one proposed rule:
• The process for designated contract markets (DCMs) and swap execution facilities (SEFs) to make a swap available to trade.
Last Friday, the Commission approved an interpretation relating to anti-fraud authority provided in the Dodd-Frank Act. This interpretation had originally been on the calendar for today, but was completed by seriatim last week.
The CFTC is working to complete Dodd-Frank rules thoughtfully – not against a clock. We have finished 18 rules and have a full schedule of public meetings this month and into next year.
We have benefited from significant public input, including more than 25,000 comment letters, 1100 meetings and 14 roundtables.
I have directed staff to host additional roundtables as well. After the first of the year, staff will put together a roundtable on mandatory clearing for swaps. 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 the clearinghouses will decide on the timing for submission, this could be in the near term. Thus, this roundtable will provide further helpful public input regarding the implementation of the clearing mandate.
Today, we are considering a rule to enhance customer protections regarding where derivatives clearing organizations (DCOs) and futures commission merchants (FCMs) can invest customer funds. I believe that this rule is critical for the safeguarding of customer money.
The Commodity Exchange Act in section 4d(a)(2) prescribes that customer funds can only be placed in a set list of permitted investments. From 2000 to 2005, the Commission granted exemptions to this list, loosening the rules for the investment of customer funds. These exemptions allowed FCMs to invest customer funds in AAA-rated sovereign debt, as well as to lend customer money to another side of the firm through repurchase agreements.
Today’s rule prevents such in-house lending through repurchase agreements. I believe there is an inherent conflict of interest between parts of a firm doing these transactions. The rule also would limit an FCM’s ability to invest customer money in foreign sovereign debt. In addition, this rule fulfills a Dodd-Frank requirement that the CFTC remove all reliance on credit ratings from its regulations.
We proposed this rule in October 2010, and since then, I have consistently felt the CFTC needed to finalize it to ensure customer funds are protected.
This rule is important, but the agency will look at additional ways to enhance customer protections. Among the possibilities we’re reviewing are: FCM audits, FCM monthly and daily reporting to regulators, how FCMs are examined for compliance, the FCM relationship with self-regulatory organizations, custodial arrangements, and increasing the transparency of FCM to customer communication regarding how customer funds are invested.
In addition, the CFTC’s five commissioners and staff will be working with the self-regulatory organizations and market participants on further enhancements to customer protections.
The Commission also is looking to soon finish rules on segregation for cleared swaps. Segregation of funds is the core foundation of customer protection.
Also today, the Commission will consider a final rule to implement the Dodd-Frank provision for registration of Foreign Boards of Trade (FBOT), which will make the swaps market more open and transparent. This registration system replaces the CFTC’s current practice of staff issuing no-action letters to FBOTs.
Exchanges and trading platforms will allow investors, hedgers and speculators to meet in an open and competitive central market. Even market participants who are exempted from trading requirements will benefit from the transparent pricing and liquidity that trading venues provide.
When markets are open and transparent, prices are more competitive, markets are more efficient, and costs are lowered for companies and their customers. Transparency benefits the entire economy.
Lastly, we will consider a proposed rule for the process by which DCMs and SEFs make a swap “available to trade.” I also have directed staff to put together a roundtable to hear from the public on this topic during the comment period.
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: December 5, 2011