Statement of Support – Internal Business Conduct Standards
Chairman Gary Gensler
August 27, 2012
I support the final rule implementing Congress’ direction that the Commission adopt rules for “timely and accurate confirmation, processing, netting, documentation, and valuation of all swaps.” This direction was included in the swaps market reform provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
Each of these requirements promotes crucial back office standards that will reduce risk and increase efficiency in the swaps market. These final rules are critical to the risk management of swap dealers and major swap participants and lowering their risk to the public.
The rules establish procedures to promote legal certainty by requiring timely confirmation of all swap transactions, setting forth documentation requirements for bilateral swap transactions, and requiring timely resolutions of valuation disputes. In addition, the rules enhance understanding of one counterparty’s risk exposure to another, and promote sound risk management through regular reconciliation and compression of swap portfolios.
The 2008 financial crisis brought to light how large financial institutions, including AIG, had valuation disputes and other problems regarding documentation standards. These rules will directly address many of those issues, highlighting issues for senior management and regulators at an earlier stage.
The final rule builds upon extensive work by the Federal Reserve Bank of New York (FRBNY) to improve standards in the back offices of large financial institutions dealing in swaps. Beginning in 2005, the FRBNY, along with U.S. and global prudential authorities, undertook a supervisory effort to enhance operational efficiency and lower risk in the swaps market by increasing automation in swaps processing, improving documentation, and promoting the timely confirmation of trades.
CFTC staff also consulted with other U.S. and foreign financial regulators, and participated in numerous meetings with market participants. CFTC staff worked to address the more than 60 public comment letters responding to the three proposed rules comprising this final rule.
Last Updated: August 27, 2012