Sharon Brown-Hruska, Acting Chairman
US Commodity Futures Trading Commission
Before the First Trans-Atlantic Roundtable on Derivatives
February 10, 2005
It is a distinct pleasure to join Arthur in welcoming you to the first Trans-Atlantic Roundtable on derivatives, a unique opportunity for regulators and market practitioners to share views. I would also like to thank the Committee of European Securities Regulators (CESR) for undertaking the arrangements to make this event possible.
As you know, last October, CESR and the CFTC confirmed their respective intention to enhance transatlantic dialogue among regulatory authorities on operational and technical issues that could be impeding expansion of cross-border business opportunities or preventing comprehensive market oversight by announcing a Trans-Atlantic Cooperation Initiative.Today’s meeting to renew and reinvigorate valued regulatory relationships and to expand the reach of such relationships-- as the EU itself has expanded-- culminates more than 15 years of successful cooperation between the CFTC and many CESR members in a variety of cross-border arrangements that have opened access to products and markets. It also draws on a long history of cooperative enforcement that has helped us to protect confidence in the legitimate marketplace while global business has grown exponentially.
The success of these arrangements and relationships rests on the very simple but profound idea that to the extent that you accept that global access to markets and products is a valuable objective, it follows that the exercise of our supervisory responsibilities requires some measure of reliance on our regulatory counterparts. I am proud to say that the CFTC is a strong proponent of this view.
Why? First, experience demonstrates that competition among products, markets and brokerage services has boosted the derivatives market as a whole, leading to increased volumes, lower costs, and better services. Increased liquidity in turn benefits the economy as a whole because it expands businesses’ and consumers’ ability to manage their risks, diversify their portfolios, and assure the appropriate pricing of commercial transactions. The vibrant price discovery mechanism of the expanding derivatives markets is part of the lifeblood of the free market system.
Second, the unblemished record of allowing foreign brokers to solicit US customers under Commission rule 30.10 orders, which offer an exemption from CFTC registration based on substituted compliance with the authorization regimes of jurisdictions with “comparability” of regulation, as well as the assistance we have received in cross-border enforcement matters, testifies to the logic of appropriate reliance on our regulatory peers. Indeed, since 1989, when the first exemptions were issued, over 160 brokers in 15 different jurisdictions have carried accounts for U.S. persons using non-US derivatives products without incident. We have recognized the practical need to seek appropriate arrangements with foreign supervisors where systems accessed by US customers are located outside the US or cross-border linkages or ownership require us to take account of other regulators powers and oversight. Our cooperation with regulators in these instances is based upon a knowing inquiry into the structure and application of the other regulatory system and the negotiation of necessary cooperative arrangements.
But where do we go from here? Probably more than at any time in history, our markets are thriving, due not only to the relentless pace of technology and product innovation, but also in part to the liberalizing reforms that have been adopted in the United States and the European Union.
As much as we have to proud of, we cannot rest on our successes. In an environment in which our markets and brokers are continually innovating to provide better, more cost effective services and market users are demanding greater access to markets and products without regard to borders, so too must we as regulators constantly reassess and improve our regulatory “product,” both from the perspective of providing market opportunities and meeting regulatory objectives.
Today, we hope to explore ways to build on our record of success. The CFTC strongly believes that its role as a regulator is to protect investors, assure fair, transparent and efficient markets, and mitigate potential systemic risks but not to unduly circumscribe how business is organized It is my belief that allowing businesses to craft their relationships with clients and the markets in ways that preserve relationships, assure account security, and permit access to the best execution ultimately improves both business and accountability. In today’s complex world of financial sector opportunities, the regulator must increasingly look to the marketplace to assure that the framework it applies is clear and transparent to today’s broader more dispersed base of market users and that its regulatory system takes account of how business really gets done so that regulation remains efficient and effective.
One way regulators can improve the efficiency, credibility, and effectiveness of our regulatory services is by being responsive to the practical problems and risks faced by market participants in the day-to-day conduct of their businesses.
In this regard, today markets, intermediaries, and market users not only encounter the legal and commercial risks common to doing business in any domestic market, but also must navigate complex combinations of legal, operational, market, credit and liquidity risks associated with doing business in multiple jurisdictions. Often, the lack of transparency and clarity of relevant rules or lack of awareness by regulators of how regulatory differences can impact the marketplace can, and do, inhibit the smooth transaction of business.
We convened this assembly of distinguished representatives of markets, intermediaries, and users to examine jointly these increased complexities with a view to developing an achievable plan of action that could potentially serve as a model in other jurisdictions and regions. We believe strongly that you can assist us in prioritizing issues and in framing solution-oriented regulatory strategies to make it easier to assess the requirements and risks of specific cross-border transactions and in facilitating cross-border transactions as appropriate.
As I have often said, our goal should be to foster conditions that permit markets to function seamlessly, so that market participants can execute their investment preferences globally and markets themselves can innovate and deliver the range of products and services demanded by their customers.
One way for regulators to develop their programs in ways that foster such a seamless global marketplace is to be good listeners – that is, to listen to those who use and operate the markets, to understand the risks and concerns they face in cross-border transactions, and to include those considerations into our regulatory analysis and agenda.
Therefore, I am very pleased to have this opportunity to join with the regulators of CESR in hearing the industry’s views on how best we can meet these challenges