March 20, 2012
Thank you Mr. Chairman. First, I’d like to thank this rulemaking team for their hard work and diligence in crafting these final rules. Today we are considering rules that address the documentation between a customer and a futures commission merchant that clears on behalf of a customer; the timing of acceptance or rejection of trades for clearing by derivatives clearing organizations and clearing members; and the risk management procedures of futures commission merchants (FCMs), swap dealers (SDs), and major swap participants that are clearing members.
The aim of these rules is to provide: 1) increased access to clearing and competitive execution of transactions; 2) mitigation of counterparty credit risk through central clearing; 3) prompt, efficient, and accurate clearing using straight through processing; 4) minimization of the time between trade execution and acceptance into clearing; 5) certainty around post trade allocation of bunched orders; and 6) greater integrity to the markets and the clearing system by setting out basic risk management requirements for participants in the clearing process.
The goals these final rules seek to achieve are the right ones for our markets and for this reason I support them.
However, I am troubled that in finalizing these rules we continue to require substantial modifications to common business practices without recognizing the time and cost it will take to comply. Any rules we issue must be rules that are technologically and operationally feasible for market participants. The last thing we want to do at this critical juncture is to create barriers to entry. We must be mindful that while we create additional opportunities for clearing we do not undermine the integrity of our clearing members and clearing houses.
There are some entities that already have the required technology to comply with these rules, but other entities may have to build out the appropriate system changes. Collectively, these changes are not insignificant and may require more time than we have recognized. One of the goals of Dodd-Frank was to mitigate systemic risk. Perversely we may actually be concentrating risk in only the largest firms that have the ability to comply with all of the rules we continue to layer on, thereby reducing competition. Businesses whose dealing operations are small may decide that it is just too costly to comply. I do not think that is the outcome we desire as we continue to implement this new regulatory framework.
To the extent market participants require additional time or other relief to comply with the technological requirements these rules may create, I hope we will take a sensible approach in considering, and when warranted, granting such relief.
This is the approach we took with our Part 20 large swap trader reporting rules, which we knew market participants would be unable to comply with. In that instance, the Division of Market Oversight has issued multiple no-action letters that apply market-wide, to assure market participants that the Division will not recommend Enforcement action be taken against a market participant for providing non-compliant reports to the Commission. In that context, we have recognized that when market participants are acting in good faith and are working toward compliance with new rules, relief is appropriate. If we again issue rules that market participants cannot comply with, we must provide appropriate relief.
Again, I thank the team for their hard work.
Last Updated: March 20, 2012