December 20, 2011
Thank you Mr. Chairman. And, as always, I thank the teams who have worked so diligently on the final rules we are considering today.
Today we are considering very important data, recordkeeping, and reporting rules that are critical to ensuring that swap market activity is transparent to regulators and market participants alike. The rules we are voting on today seek to strike a balance between obtaining necessary and timely market data while attempting to minimize the associated costs and burdens on markets and market participants. Make no mistake, these rules certainly have costs associated with them, but swap data recordkeeping and reporting are mandated by Dodd-Frank. Our job as regulators is to understand that legislative mandate, to identify the regulatory objectives that will give effect to that mandate, and set out to achieve those objectives in the least costly and burdensome way. For the swap data recordkeeping and reporting rules to function properly, we need to ensure there is consistency among domestic and international regulators when it comes to unique swap identifiers, unique product identifies, and legal entity identifiers. I appreciate all the work and consultation that has been done in this area and I am encouraged that we are heading in the right direction. I look forward to discussing how we can ensure consistency among our domestic and international colleagues with the team. I supported the data recordkeeping and reporting requirements proposed rules last November, and I intend to vote for the final rules today.
I did not vote for the real-time reporting proposed rules last December. Among my concerns were differences between our proposed rules and the SEC’s proposed rules, the block trade provisions, and the 15 minute time delay for reporting block trades. I am pleased that we will be re-proposing the block provisions, and that we have substantially revised the time delay provisions. Comment letters addressing these areas were very helpful and deserve credit for the Commission adopting a much more reasonable approach in the final rules. I hope we follow this model in the future and adopt final rules that are much more reasonable than the rules initially proposed. When it comes to swap markets, I believe a reasonable, measured approach is critical. Swap markets developed without our involvement, and we have little experience with these markets. The truth is we don’t know what the full impact of our rules will be, and don’t know whether the assumptions we operate under are valid. Given this knowledge gap, it makes more sense to start with a broader, more flexible approach, and become narrower and more restrictive only as is necessary and after we have sufficient experience and data to make these decisions.
I intend to vote for the real-time reporting rules but do have a number of questions for the team. I would like to hear about our cooperation and coordination with domestic and international regulators and whether we expect there to be any inconsistencies; how the timing of reporting requirements will work in the context of transactions that are executed and confirmed between parties in time zones half-way around the world; and whether we have any analysis that suggests the time delays we are setting in these final rules are the correct time delays.
One last point I would like to make applies to a broader set of rules than the rules we consider today. The preamble of the real-time reporting rules state that a swap is “economically related” to a single contract if it utilizes as its sole floating reference price the prices generated directly or indirectly from the price of a single contract. The term is not defined in rule text. The term “economically related” as well as “economically fungible” are also terms used in the context of other rules. The term “economically equivalent swap” appears in the Commission’s final position limits rules, without much of a definition and just two weeks ago the Commission voted on rules relating to the determining whether a swap is made available to trade. Those proposed rules direct DCMs and SEFs to determine whether a swap is “economically equivalent” with another swap after considering each swap’s “material pricing terms.” Defining “economically related”, “economically fungible” and “economically equivalent” in a consistent way across all rules is important. If critical terms such as these are used in multiple places in Commission rules, the terms should have the same meaning each time they are used. I am not sure we have fully articulated definitions of these three very similar, yet different terms. I have concerns regarding market implications as we continue to finalize rules without fully defining similar terms.
Thank you and I look forward to the discussion of these final rules.
Last Updated: December 20, 2011