January 22, 2016
Five and a half years after the Dodd-Frank Act required the registration of U.S. platforms for swaps transactions, the CFTC has today announced full registration of eighteen applicants as swap execution facilities (SEFs). It is a notable accomplishment. I commend the Division of Market Oversight staff for completing this step to enhance the safety and soundness of U.S. financial markets.
The staff’s work was made unreasonably more complicated by having to apply the CFTC’s misconceived swaps trading rules to the distinct liquidity characteristics, long-established market practices and sophisticated market structure of the global swaps markets.1 Yet, completing this registration process reduces uncertainty for market participants who have been served by temporarily registered SEFs for the past two plus years.
Still, it cannot go unremarked that, in order to make full registration a reality, the Commission expressly relies on a series of five time-limited staff no-action letters to provide “workarounds” for its flawed swaps trading rules. Without reliance on the no-action letters, registration could not have been achieved without substantial harm to the existing marketplace. The Commission’s dependence on this hodgepodge of workarounds confirms what I said in my White Paper – that the CFTC’s flawed swaps trading rules are broadly mismatched to the inherent structure and workings of global swaps markets.2
Relying on no-action letters for full registration does not fix the underlying flaws in the CFTC’s swaps trading rules. It does not provide the regulatory certainty that is a necessary element of marketplace confidence essential to sustainable economic recovery.
Now that the full SEF registration process is mostly complete, I urge the Commission to adopt the recommendations in my White Paper and Six Month Progress report3 and finally fix the swaps trading rules. Simply codifying the existing flawed no-action letters will not adequately address the underlying issues. It is past time to align the CFTC’s swaps trading regulatory framework with the clear mandate of Title VII of the Dodd-Frank Act.
1 CFTC Commissioner J. Christopher Giancarlo, Pro-Reform Reconsideration of the CFTC Swaps Trading Rules: Return to Dodd-Frank (Jan. 29, 2015), available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/sefwhitepaper012915.pdf.
3 Id.; Statement of Commissioner J. Christopher Giancarlo, Six Month Progress Report on CFTC Swaps Trading Rules: Incomplete Action and Fragmented Markets (Aug. 4, 2015), http://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlostatement080415.
Last Updated: January 22, 2016