Remarks of CFTC Director of Division of Swap Dealer & Intermediary Oversight Matthew Kulkin at New York City Bar Association
develops and monitors compliance with regulations addressing registration, business conduct standards, capital adequacy, and margin requirements for SDs and MSPs. The Division also oversees the registration and compliance of the other intermediaries I just listed and futures industry SROs, including U.S. derivatives exchanges and the National Futures Association (“NFA”).
We continue to review certain parts of the swap dealer business conduct standards regime, as well as ways to make our CPO/CTA regulation better reflect our statutory objectives. With all of this work, we prioritize coordination and collaboration with our peers at the SEC to harmonize our requirements for dual Registrants.
We are constantly evaluating how staff can provide a better “customer experience” for our Registrants. As part of our internal Project KISS assessment, we realized we can do a better job making Division information easily accessible by Registrants and market participants. In the last few months, DSIO has launched a new website that serves as a resource for the public containing our mission statement, senior staffs’ contact information, as well as links to recent Commission rulemakings, staff letters, NFA resources, and other valuable materials. DSIO has also worked with our colleagues to improve the CFTC’s staff letter website, making it easier for market participants to search for and locate relevant staff letters.
DSIO will continue to focus on and implement these good government modifications that simplify obligations and reduce unnecessary burdens. These changes are important and further the Chairman’s goals of a more flexible and durable market framework, all of which leads to more efficient markets and greater economic growth.
This evaluation should be continuous. DSIO expects our Registrants to regularly review and revise their policies and procedures – not just to ensure they demonstrate compliance with our rules – but also to accurately reflect their business. Firms’ methods constantly evolve to better align with emerging technologies and industry best practices. In other words, they improve and adapt.
We should do the same. If our rules have unintended negative consequences, we should address them. If our rules are unduly impeding innovation and competition, we should reconsider their application. We, too, should improve and adapt to the constant evolution of our markets.
We should focus our efforts on providing a more supportive framework for deep and liquid markets. We should make every effort to remove barriers for new entrants and to reduce obstacles for those seeking to access our markets. We should review parts of our regulatory regime that were written a generation ago and intended for a different market structure, just as we should review those written in response to a crisis to assess their efficacy and determine areas ripe for improvement.
To that end, in addition to the Project KISS initiatives I previously mentioned, the Division has worked, and will continue to work, to directly improve market quality by eliminating unnecessary barriers and removing ancillary regulations that prevent entities from entering the derivatives market. Specifically, , DSIO has undertaken a number of initiatives that have had a direct impact on market quality.
Some of these efforts include:
- Removing Barriers for Banks Entering into Customer Swaps in Connection with Loans: In April 2019, the Commission adopted an exception to the swap dealer registration regime to encourage more insured depository institutions (“IDIs”) to participate in the swap market, increasing the availability of loan-related swaps and helping end-user customers hedge loan-related exposure. This rule will also allow certain banks to engage in an ancillary amount of dealing without significant hurdles to market entry.
- Relieving Prime Brokers from Certain Swap Dealer Business Conduct Standards: In March 2019, the Division issued a no-action letter that allows prime brokers to act as a source of liquidity in swaps, particularly FX swaps, without the burden of certain pre-trade disclosure obligations that are difficult to provide in the context of a PB transaction. Division staff believes this relief will attract more PBs to provide bids and offers in swaps markets, including those trades executed on swap execution facilities.
- Providing Regulatory Certainty in the Face of a No-Deal Brexit: Over the past few months, DSIO has taken steps to mitigate potential market disruption in the case of a no-deal Brexit. These measures have included the issuance of staff no-action letters and a Commission interim final rule related to the application of the CFTC’s margin rules.
DSIO is actively considering additional possible recommendations on other similar initiatives that could improve market quality:
- Floor Trader Exclusion for Swap Dealing: As the Chairman has noted, DSIO continues to review the application of the floor trader exclusion from the swap dealer definition. DSIO continues to consider how to provide clarifications that assist registered floor traders to provide swaps liquidity.
- Permitted Investments for FCMs. Similar to the recent Commission order granting an exemption for derivatives clearing organizations’ investment of customer funds in certain euro-denominated sovereign debt, DSIO staff is considering recommendations for the Commission to grant a similar exemption for FCMs. DSIO staff is assessing several types of investments and beginning to analyze the appropriateness of sophisticated market participants being able to make commercial decisions with the need for highly liquid, stable investments.
- Phase Five Margin Implementation. DSIO staff continues to work on Phase Five uncleared margin implementation for September 2020. The Division is considering various measures related to the large number of firms that may be impacted, evaluating potential relief, and working with global regulators through the Basel Committee on Banking Supervision and the International Organization of Securities Commissions to avoid any potential market disruption.
foster open, transparent, competitive, and financially sound markets.” By appropriately addressing regulatory burdens facing Registrants and thoughtfully considering how our rules impact market quality, I believe our work can indeed foster more open and competitive markets.
I look forward to working with all of you.
 Re-Balancing Reform: Principles for U.S. Financial Market Regulation In Service to the American Economy, Remarks of CFTC Commissioner J. Christopher Giancarlo before the U.S. Chamber of Commerce, November 20, 2014, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlos-2.
 CFTC: A New Direction Forward, Remarks of Acting Chairman J. Christopher Giancarlo before the 42nd Annual International Futures Industry Conference, Boca Raton, FL, March 15, 2017, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-20.
 Chief Compliance Officer Duties and Annual Report Requirements for Futures Commission Merchants, Swap Dealers, and Major Swap Participants, 83 Fed. Reg. 43510 (Aug. 27, 2018).
 Segregation of Assets Held as Collateral in Uncleared Swap Transactions, 84 Fed. Reg. 12894 (Apr. 3, 2019).
 Financial Surveillance Examination Program Requirements for Self-Regulatory Organizations, 84 Fed. Reg. 12882 (Apr. 3, 2019).
 Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors, 83 Fed. Reg. 52902 (Oct. 18, 2018).
 CFTC KISS Policy Forum, Remarks of Michael Gill, Chief of Staff, at the National Press Club, Washington, D.C., February 12, 2018, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagill2.
 Division of Swap Dealer and Intermediary Oversight, available at https://www.cftc.gov/About/CFTCOrganization/DSIOmission.html.
 CFTC Staff Letters, available at https://www.cftc.gov/LawRegulation/CFTCStaffLetters/letters.htm.
 De Minimis Exception to the Swap Dealer Definition-Swaps Entered Into by Insured Depository Institutions in Connection With Loans to Customers, 84 Fed. Reg. 12450 (Apr. 1, 2019).
 No-Action Position for Off-SEF Swaps Executed Pursuant to Prime Brokerage Arrangements, Staff Letter 19-06 (Mar. 22, 2019), available at https://www.cftc.gov/sites/default/files/csl/pdfs/19/19-06.pdf.
 CFTC Staff Provides Further Brexit-Related Market Certainty, April 5, 2019, available at https://www.cftc.gov/PressRoom/PressReleases/7910-19.
 Interim Final Rule: Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 84 Fed. Reg. 12065 (Apr. 1, 2019).
 Remarks of CFTC Chairman J. Christopher Giancarlo at the DerivCon 2019 Conference, New York, NY, February 27, 2019, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo65.
 Order Granting Exemption From Certain Provisions of the Commodity Exchange Act Regarding Investment of Customer Funds and From Certain Related Commission Regulations, 83 Fed. Reg. 25241 (July 25, 2018).