Opening Statement, Public Meeting on Dodd-Frank Act
Commissioner Michael V. Dunn
July 19, 2011
Thank you all for joining us today for our second meeting to consider final rules promulgated pursuant to the Dodd-Frank Act. Today we consider three final rules:
- Part 40, Provisions Common to Registered Entities;
- The Process for Review of Swaps for Mandatory Clearing;
- Removing any Reference to or Reliance on Credit Ratings in Commission Regulations; Proposing Alternatives to the Use of Credit Ratings
Before even considering any final rule, I ask each rule writing team to answer a set of questions. First and foremost among these questions is whether or not the proposed final rule adheres to the agency’s principle-based regulatory approach, an approach that has served the futures industry well both before and after the financial crisis. I am concerned that the final rule regarding Part 40 is too prescriptive and does not adhere to our principle-based approach. Despite staff’s efforts to soften this rule in response to comments on our original proposal, I still believe that the requirements in the final rule regarding documentation are prescriptive in nature. Additional requirements for the self-certification of products may unnecessarily delay exchange innovation for little to no benefit to the CFTC.
Part 40 also includes rules pertaining to rule certifications for systemically important designated clearing organizations. Like both the CME and OCC, I believe that a SIDCO attempting to implement a risk reducing rule change should not have to wait up to 60 days to change their rules. While I understand that the CFTC must consult with the Federal Reserve regarding certain matters relating to SIDCOs, such consultation should not jeopardize the public interest. This portion of Part 40 seems to not only slow down a SIDCO seeking to reduce systemic risk, but it may slow down our ability to approve such a change as well.
From early in the proposed rule phase of Dodd-Frank implementation, I have stated my concern that budget constraints and the efforts of those who would delay, weaken, or eliminate Dodd-Frank would force us to be more prescriptive than we would otherwise be in promulgating our final rules. I fear that my concerns have come to fruition in this rule. If not for our budget constraints, I would vote against this rule. As it stands, I must weigh my disdain for prescriptive, perhaps restrictive, rules against the competing interest of having a rule that we can implement and enforce with an undersized and overworked staff.
I also expressed concerns and questions to the Chairman’s office and the rule team regarding the final rule on the process for review of swaps for mandatory clearing. As has been the case throughout this process, the Chairman’s office and the rule team were accommodating in answering my questions, making necessary changes, and working collaboratively with my office. I continue to give the Chairman high marks for conducting an open and transparent rulemaking process.
In addition to the final rules considered today, we are also considering a proposed rule on Customer Clearing Documentation, Timing of Acceptance for Clearing and Clearing Member Risk Management. While I again have concerns that this proposed rule is too prescriptive, I will look to the public comments to guide my ultimate decision on whether or not to vote for this rule.
I would like to acknowledge that this week will mark the first anniversary of the Dodd-Frank Act. Over the past year, the Chairman and his staff have done a tremendous job moving forward on implementation of Dodd-Frank despite limited resources. As we move forward in the coming months on the bulk of the new regulations required by Dodd-Frank, I urge the Chairman to place special emphasis on rules pertaining to the regulation of swaps transactions, which were, in my opinion, largely responsible for the financial meltdown. With all of the Commission’s new responsibilities under Dodd-Frank, this is not the time for us to make significant changes to regulations pertaining to the futures industry which functioned properly during the financial crisis. We need to focus our limited resources on regulations that will provide real safeguards to our financial service industry.
I would like to thank the staff at the CFTC for all their hard work on these very important rules. The rule writing teams have put in incredibly long hours answering difficult and time consuming questions from the Commissioners’ offices. I appreciate their effort and look forward to their presentations.
Last Updated: July 19, 2011