Statement of Chairman Heath P. Tarbert in Support of Long-Awaited Updates to the CFTC’s Bankruptcy Regime

April 14, 2020

In his 1926 novel The Sun Also Rises, Ernest Hemingway offers what is perhaps the best chronicle of the anatomy of a typical bankruptcy. In the novel, the character Mike Campbell is asked how he went bankrupt.  He answers:  “two ways . . . gradually and then suddenly.”

As Hemingway’s dialogue succinctly describes, bankruptcies often come on unexpectedly. A business’s relatively minor financial or operational troubles may be exacerbated by a sudden crisis—whether a firm-level issue, or a national or even global event. Many catalysts for insolvency are entirely unpredictable, and we must be prepared with a bankruptcy regime that fosters a swift and equitable resolution.

Background on the CFTC’s Bankruptcy Regime

Part 190 of the CFTC’s rules, addressing commodity broker[1] bankruptcies, was enacted in 1983. Since that time, the commodity broker bankruptcy process and the state of the industry have gradually changed. Yet in the nearly four decades since, Part 190 has never been revised to keep up. This regime is intended to protect customer funds, but having antiquated rules does not help achieve that goal.

CFTC staff has therefore embarked on a process of updating Part 190 over the last several years, while a healthy economy made bankruptcies relatively unlikely. Today’s proposal is a product of that hard work and engagement with external stakeholders and subject matter experts, including the American Bar Association.

To be clear, U.S. derivatives markets have weathered the recent volatility associated with the coronavirus pandemic admirably. The decision to issue this proposal was made long before COVID-19 emerged as a concern, and I hope and anticipate that it will not be necessary to use this updated bankruptcy regime to address fallout from current market conditions. But as I just noted, we cannot know for certain what the future holds—for bankruptcy often comes “gradually and then suddenly.”  We must therefore be prepared for all contingencies.

Accordingly, I am pleased to support today’s proposal to update Part 190 for the 21st century. The proposal promotes the CFTC’s core values in a number of ways, particularly the values of clarity and forward thinking. The proposal also furthers the agency’s strategic goal of regulating our derivatives markets to promote the interests of all Americans.[2]

Clarity for Customers and Creditors

The proposed rule serves our core value of clarity by incorporating key principles and actual practice as they have evolved in commodity broker bankruptcies and related judicial decisions in the years since 1983.

A new introductory section of the rule would enumerate certain “core concepts” of commodity broker bankruptcies. This section is intended to offer a readily understandable primer on relevant law, policy, and practical considerations in this area, thereby providing a common mental framework for brokers, customers, bankruptcy trustees, courts, and the public. Among other things, this section provides an overview of the various classes of customer segregated accounts held by a commodity broker; the priority of public customers over non-public customers; the requirement of pro rata distribution; and the preference to transfer rather than liquidate open positions.

The proposal would further codify a number of approaches and practices that have proven necessary or desirable in commodity broker bankruptcies in the intervening years since 1983. For example, the proposed rule would authorize a bankruptcy trustee to treat a broker’s customers in the aggregate for certain purposes, rather than handling each customer’s account on a bespoke basis. This aggregate treatment has in practice proven unavoidable in more recent commodity broker bankruptcies, which have required disposition of hundreds of thousands of derivatives contracts—on behalf of thousands or tens of thousands of customers—within days or even hours. By making clear that such aggregate disposition of accounts is permissible and may even be likely to occur than the alternative, the proposal would provide greater clarity on potential outcomes for trustees, brokers, and customers.

Thus, for example, the proposed rule would expressly permit the trustee, following consultation with CFTC staff, to determine whether to treat open positions of public customers in a designated hedging account as specifically identifiable property (requiring the trustee to solicit and comply with individual customer instructions), or instead transfer or “port” all such positions to a solvent commodity broker where possible. This provision recognizes that requiring the trustee to identify hedging accounts and provide account holders the opportunity to give individual instructions is often a resource-intensive endeavor, which could interfere with the trustee’s ability to act in a timely and effective manner to protect all the broker’s customers.[3]

The proposal also includes explicit rules governing the bankruptcy of a clearinghouse, otherwise known as a derivatives clearing organization or DCO.  Since its inception, Part 190 has contemplated only a “case-by-case” approach with no corresponding rules to spell out what would happen.  While a DCO bankruptcy is extremely unlikely, it is important to provide ex ante clarity to DCO members and customers as to how a resolution would be handled. The proposed rule would favor following the DCO’s existing default management and recovery and wind-down rules and procedures. This would allow the bankruptcy trustee to take advantage of an established “playbook,” rather than being forced to form a resolution plan in a matter of hours during the onset of a crisis. The proposed rule would also give legal certainty to DCO actions taken in accordance with a recovery and wind-down plan filed with the CFTC by precluding the trustee from voiding any such action.   

I support codifying these and other practices within our rules in order to provide greater transparency and predictability to brokers, customers, and other key stakeholders regarding permissible and expected procedures in a bankruptcy scenario.

Forward Thinking on Future Insolvencies

The proposed rule would update a number of provisions to reflect changes in financial technology since Part 190 was enacted 37 years ago. The enhanced discretion discussed above would in many cases help the trustee to account for the many-fold increase in transaction execution and processing speed, as well as the potential for large and unpredictable market moves given the rise of global trading and the 24-hour news cycle. In addition, the proposal would acknowledge digital assets as a physically deliverable asset class, in light of the listing of a number of physically delivered “virtual currency” derivatives contracts.

The proposed changes also reflect advances in communications technology. For example, under the proposed rule, notice of a bankruptcy filing and related filed documents would be provided to the CFTC by electronic rather than paper means.  Furthermore, required customer notice procedures would no longer include publication in a “newspaper of general circulation” in light of the downward trend in newspaper readership. The proposal would similarly recognize changes from paper-based to electronic recording of documents of title.

Promoting the Interests of All Americans

Protection of customer funds is the lynchpin of the commodity broker bankruptcy regime of Part 190. The proposed rule includes a number of measures to enhance those protections, including by buttressing provisions already in place under existing law and regulation. In doing so, the proposal seeks to ensure that the CFTC’s bankruptcy regime works for the derivatives market participants it was meant to serve—particularly public brokerage customers, with a special emphasis on customers using derivatives to hedge their commercial risks.

For example, the proposal reinforces the bankruptcy priority of public broker customers over “non-public” customers (e.g., the broker’s proprietary and affiliate accounts). It also strengthens the CFTC’s longstanding position that shortfalls in segregated customer assets should be made up from the broker’s general estate. As a result, our proposal makes clear that the CFTC’s bankruptcy regime is complementary to relatively recently-enacted customer protection rules for day-to-day broker operations.[4]

The proposal would also further the preference—consistent with Subchapter IV of the Bankruptcy Code[5]—for transferring or “porting” customer positions to a solvent broker, rather than liquidating those positions. Porting of positions protects the utility of customer hedges by avoiding the risk of market moves between liquidation and re-establishment of the customer’s hedging position. It also mitigates the risk that liquidation itself will cause such market moves. Among other measures, the grant of trustee discretion as to whether to treat hedging positions as specifically identifiable property will serve these objectives by facilitating porting of such positions en masse, promptly and efficiently, along with other customer property.

Conclusion

While updates to the CFTC’s bankruptcy rules have been years in the making, I believe today’s proposal was well worth the wait. The commodity broker resolution regime of Part 190 is respected throughout the world for its effectiveness and efficiency. In addition, Part 190 is important to the continued global competitiveness of American exchanges, clearinghouses, and market intermediaries. The proposed rule further enhances these features of our regime. Through its focus on promoting customer protection, clarity, and forward thinking, I believe the proposed rule would, if finalized, position us well for this decade and beyond.   

[1] The term “commodity broker” may refer either to a futures commission merchant (“FCM”) or a derivatives clearing organization (“DCO”). 11 U.S.C. 101(6).

[2] See Remarks of CFTC Chairman Heath P. Tarbert to the 35th Annual FIA Expo 2019 (Oct. 30, 2019), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opatarbert2 (outlining the CFTC’s strategic goals).

[3] The proposal would also grant the trustee needed discretion in other respects—for example, by allowing the trustee to modify the customer proof of claim form as appropriate for a particular bankruptcy.

[4] 17 C.F.R. § 1.23 (enacted in 2013 and revised in 2014) (requiring an FCM to contribute its own funds as “residual interest” to top up shortfalls in customer segregated accounts in the ordinary course of business).

[5] Statutory authority for Part 190 includes Subchapter IV of Chapter 7 of the Bankruptcy Code.

Statement of Commissioner Dan M. Berkovitz on Proposed Amendments to CFTC Bankruptcy Regulations

April 14, 2020

Introduction

I support the proposed comprehensive amendments to the Commission’s bankruptcy regulations.  These regulations specifically address the disposition of assets, particularly customer property, of a bankrupt futures commission merchant (FCM) or derivatives clearing organization (DCO).  The amendments provide a needed update to regulations that the Commission originally adopted in 1983 to account for significant changes in the size, complexity, and structure of our derivatives markets and market participants over the past 37 years.  They also incorporate “lessons learned” from FCM bankruptcies during that period.  FCM bankruptcies are rare, and a registered DCO has never gone bankrupt in the history of the CFTC.  It is nonetheless important to make the bankruptcy process as effective and efficient as possible to protect, preserve, and return customer assets quickly.

The overarching purposes of the provisions in the U.S. Bankruptcy Code relating to the liquidation of commodity brokers are to protect the customers of such brokers and to mitigate systemic risks that could arise from a commodity broker bankruptcy.[1]  The Bankruptcy Code provides certain special protections for positions and property of customers of an FCM debtor so that the customers and current or future counterparties (and the clearing house) can be assured that those positions and property will not be treated as part of the FCM debtor’s property and can be transferred to another FCM.  In this way, a single FCM’s bankruptcy will not cascade through derivatives markets by impacting customer positions and the counterparties to those positions.[2]

In section 20(a) of the Commodity Exchange Act (“CEA”) Congress gave the Commission broad authority to establish regulations regarding commodity broker debtors, including identifying which property shall be considered customer property (or commodity broker member property), the method for conducting the business of a commodity broker after the filing of a bankruptcy petition, and how net equity of customers is determined.[3]  Pursuant to CEA section 20, the Commission first adopted regulations to address these issues in 1983.

Need for Comprehensive Amendments

Since 1983, trading volumes and speeds have increased significantly.  There are fewer FCMs, and much of the FCM business is concentrated in a few large firms, particularly with respect to swaps.  Swap trading and clearing were added to the CFTC’s jurisdiction following the 2008 financial crisis, and FCMs and clearing organizations trade and clear large volumes of swaps that were not considered when the Commission first adopted its bankruptcy regulations.  The volume of cleared derivatives trades has also grown, and the amount of customer property held by FCMs and clearing organizations has correspondingly increased to tens of billions of dollars.  This increase in the amount of customer property holdings and concentration of activity in fewer commodity brokers increases the complexity and risks posed by a commodity broker bankruptcy.

These changes in the derivatives industry since the Commission originally adopted its bankruptcy regulations warrant updating those regulations.  In addition, the several FCM bankruptcies that have occurred during this period have provided valuable lessons regarding how the current regulations have operated in practice.  It is appropriate to incorporate into the Commission’s regulations these lessons to improve the timely and equitable distribution of customer assets.  The preamble to the Proposal provides a good summary of the foundational principles underlying the Proposal and describes the large number of rule amendments to implement those principles.  I will mention here a few aspects of the Proposal that I encourage commenters to address.

The Proposal is consistent with the bankruptcy code generally, while also recognizing the particular nature and uses of derivatives and their unique status under the code.  The Proposal incorporates pro rata distribution among “public customers”[4] as a class, with public customers having a priority interest in property held by a debtor FCM.  This approach is appropriate because public customers are not participants in the business decisions of the FCM debtor, and pro rata distribution among public customers would put smaller customers on an equal footing with larger customers.  The Proposal also grants greater discretion to the trustee that manages the bankruptcy process, in recognition of the complexity of modern commodity brokers, the speed of trading and price discovery, and the stated goal of prompt distribution of customer property.

Emphasizing prompt distribution of customer property over exacting precision in certain aspects of the bankruptcy proceedings is also a guiding concept in the Proposal.  One of the lessons the Commission has learned from prior FCM bankruptcies is that many public customers rely on expected cash flows from commercial activities, including associated hedges, to fund ongoing operations.  A failure to promptly distribute funds in a bankruptcy proceeding could therefore not only disrupt the cash flow and normal business operations of the debtor’s customers, but also set in motion a chain of payment delays or failures in commercial markets.

While I believe the Proposal largely achieves an appropriate balance of equitable and prompt resolution of a bankrupt commodity broker, I look forward to receiving comments from stakeholders on these issues.  In particular, I look forward to hearing from smaller commercial market participants who may not have the resources to actively defend their own interests in an FCM bankruptcy proceeding.  Does the Proposal provide sufficient protections?  Are the likely outcomes from the customer property distribution choices made in the Proposal expected to provide an equitable and timely result?  I look forward to comments.

Comment Period

Speaking of comments, in light of the coronavirus emergency this country and the world are currently dealing with, 90 days is not sufficient time to review and comment on this nearly 400-page document.  The Proposal amends almost every section in the existing bankruptcy regulations and adds several new provisions.  A 90-day comment period would barely be long enough in normal times.  Many stakeholders with an interest in these regulations are struggling day-by-day, hour-by-hour, just to maintain operations, generate cash flow, and pay employees.  It is incongruous to ask the public to digest in 90 days a lengthy and complex rulemaking that took the Commission three years to develop.  There is no statutory deadline or commercial imperative that compels a comment period of 90 days.  There is no need to rush commenters or the rulemaking process in the midst of a pandemic in an area as complex and as important as bankruptcy.

Conclusion

I commend the hard work of the Commission staff who have spent years working on this Proposal.  The Proposal’s deliberative, pragmatic choices reflect time spent learning from past bankruptcies and engaging with a number of interested parties (particularly the American Bar Association) on these issues.  My office received a number of briefings on the Proposal and staff worked diligently to incorporate our comments throughout the process.

The Proposal is a comprehensive and complex effort to modernize the Commission’s existing bankruptcy regulations.  While FCM bankruptcies are rare and clearing organization bankruptcies have not occurred to date, such events can be highly disruptive to market participants.  In some cases, they could impact the continued operation of markets altogether.  It is critical for the Commission to update its bankruptcy rules to reduce the probability and extent of potential disruptions should an unfortunate event of bankruptcy occur.

I look forward to comments on the Proposal and working to finalize this rule in a thoughtful and deliberative manner. 

-CFTC-

Statement of Commissioner Dan M. Berkovitz on Proposed Amendments to Swap Clearing Requirement Exemptions

April 14, 2020

I support issuing the notice of proposed rulemaking (“Proposal”) to codify certain exemptions from the swap clearing requirement that currently exist through Commission guidance or staff no action relief.  Each of the proposed exemptions is consistent with longstanding Commission policy and the Commission’s experience in implementing the swap clearing requirement over the past eight years.  Codifying these exemptions will provide certainty and transparency for market participants.

First, the Proposal would codify in rule text a list of foreign central banks, sovereign entities at the national level, and international institutions that are currently excepted from the clearing requirement through no action relief or guidance.  This codification would provide regulatory certainty that executing the swaps on an uncleared basis will not run afoul of our rules.  This certainty benefits not only to the named entities, but also to their counterparties, most of which are swap dealers registered with the Commission.  As described in the preamble to the Proposal, it has been the Commission’s policy since the adoption of the clearing requirement to exempt these institutions due to considerations of international comity, the reduced risks arising from swaps entered into by these institutions, and the public purposes for which these institutions enter into such swaps.

Second, the Proposal includes a supplemental proposal making technical changes to a 2018 Commission proposal.  This proposal would provide clearing exemptions for (i) certain interest rate swaps entered into by community development financial institutions to hedge or mitigate commercial risks, and (ii) for swaps entered into by bank or savings and loan holding companies that each have no more than $10 billion in consolidated assets if they enter into the swaps to hedge or mitigate commercial risks.  This supplemental proposal also would codify relief from the clearing requirement currently provided by two no-action letters.  Commodity Exchange Act section 2(h)(7)(A) in essence excludes from the clearing requirement banks and savings associations with less than $10 billion in assets to the extent determined by the Commission.  Since the Commission has already provided the exemption to individual banks and savings associations,[1] it makes sense to codify this exemption for holding companies for those entities that also have no more than $10 billion in consolidated assets.  As described in the preamble, swap data repository data indicates that over the past several years the number and scope of such swaps entered into by these institutions that would be included within these exemptions has been relatively limited.

I commend the staff of the Division of Clearing and Risk for this well developed and drafted Proposal.  Providing certainty to market participants is important and the Proposal would do so for the entities involved in the exempted swaps.

Statement of Commissioner Dan M. Berkovitz on Final Rule Excluding the European Stability Mechanism from the Definition of Financial End User

April 14, 2020

I support today’s final rule that excludes the European Stability Mechanism (“ESM”) from the definition of financial end user in the Commission’s margin rules.  The final rule codifies no-action relief that has been in effect since 2017 that exempts the ESM from initial and variation margin requirements for uncleared swaps with swap dealer or major swap participant counterparties.  The final rule recognizes the ESM’s status as an intergovernmental institution that assists Euro-area members in financial distress and its similarity to multilateral development banks that are excluded from the definition of financial end user.  The ESM does not engage in speculative swaps trading and its swaps activities are in furtherance of its financial assistance programs.  The final rule provides certainty to both the ESM and its swap dealer counterparties in uncleared swaps, facilitates the ESM’s work in mitigating systemic risk, and poses minimal risk to the U.S. financial system.

The final rule also recognizes the importance of international comity in regulating entities established by sovereign governments for governmental purposes.  I encourage continued cooperation between the Commission and European authorities in maintaining mutual respect for our corresponding regulatory interests and expertise.

I thank the staff of the Division of Swap Dealer and Intermediary Oversight for their work on this final rule and their responsiveness to suggestions from my office.

Statement of Commissioner Dan M. Berkovitz on Proposed Rule to Amend Form CPO-PQR Reporting Requirements for Commodity Pool Operators

April 14, 2020

I am voting in favor of this proposed rule to amend Regulation 4.27 and Form CPO-PQR (“Proposal”).  The information in Form CPO-PQR that no longer would be required under the Proposal has not proven to be useful to the Commission in identifying or measuring systemic or idiosyncratic risk.

In the wake of the financial crisis and the enactment of the Dodd-Frank Act, the Commission required certain commodity pool operators (“CPOs”) to report on Form CPO-PQR a variety of data that, at the time, the Commission believed would enable it to assess risks presented by pooled commodity investment vehicles, such as a pool’s exposure to certain asset classes and susceptibility to market stress.[1]  As the Proposal explains, however, the Commission’s experience over the past seven years has unfortunately demonstrated that some of the information on Schedules B and C of Form CPO-PQR has not been useful for these purposes.  The Proposal would amend the Form CPO-PQR requirements to eliminate the information that has not proven to be of value to the Commission, yet retain the requirements to report useful information, such as the pool schedule of investments.[2]

At the same time as the Commission streamlines its data collection requirements, it must also make better use of the data that it does collect.  The Commission gathers a diverse and large array of data on a daily basis for over-the-counter and exchange-traded derivatives transactions.[3]  As the Proposal notes, these data sets have the potential to be more useful for risk monitoring and surveillance purposes than certain static information collected quarterly through Form CPO-PQR.  But the Commission still has a long way to go before it can use such data to perform a comprehensive, forward-looking analysis of our markets.  The Commission should improve its strategies and capabilities for aggregating and analyzing the information it will continue to receive.

The Proposal would take one step in this direction by requiring CPOs using the swap markets to report legal entity identifiers (“LEIs”).  Collecting LEIs is important because they allow the Commission to aggregate SDR data from related pools, thereby furthering our understanding of the role these pools play in our markets.  However, the Proposal does not require all firms, such as those that do not trade swaps, to obtain and report LEIs, so this amendment will not allow the Commission to aggregate all derivatives transactions by pools under common control.  The Commission can and should do more to integrate and analyze all of the data at its disposal.

Finally, I am pleased that the comment period for this Proposal is 60 days.  Providing the public with sufficient time to prepare meaningful comments to our rules in these extraordinary times is good public policy.

I encourage the public to comment on this Proposal.  In particular, the Proposal acknowledges that by removing from Form CPO-PQR some of the pool-specific data in Schedules B and C, less information would be available to the Financial Stability Oversight Counsel (“FSOC”).  The Proposal also notes, however, that FSOC otherwise receives comparable data for the large portion of dually registered CPOs via Form PF.  I am interested in commenters’ views on whether this amendment would affect FSOC’s ability to monitor for systemic risk.

I would like to thank the staff, particularly the Division of Swap Dealer and Intermediary Oversight, for their engagement with my office on this Proposal.  I look forward to the Commission articulating further steps to enhance its surveillance of commodity pools, and our markets more broadly.

Dissenting Statement of Commissioner Rostin Behnam Regarding CFTC’s Extension of Currently Open Comment Periods in Response to the COVID-19 Pandemic

April 10, 2020

I strongly support extending all current open comment periods on rule proposals, which will allow commenters to solely focus their efforts on the immediate personal and professional needs of the day, and ensure – after we collectively get through these uncertain times – that commenters are able to provide the CFTC with the most fulsome comments to these important policy proposals.  Unfortunately, today’s Commission action does not extend current open comment periods in any meaningful way, and thus I respectfully must dissent.

Five open comment periods are extended by today’s action.  However, the comment periods for three of the five rules are extended for a mere two days.  That is not an extension at all.  Instead, it is essentially an announcement that the Commission will not be extending these deadlines.  For two of these rules, the comment period opened on February 20, so the entire comment period has essentially spanned the COVID-19 pandemic.  Market participants deserve an opportunity to comment outside of current market conditions, and better rules would result.  Importantly, the COVID-19 pandemic itself may impact views on the proposed rules, and the CFTC should adjust comment periods to allow for consideration of these evolving impacts.

Similarly, today’s action extends the comment period for position limits by a mere sixteen days.  Prior position limits proposals have garnered hundreds of public comments totaling thousands of pages.  Producing these comments presumably takes months of work and careful thought by market participants and other stakeholders.  Extending the deadline to May 15 as market and public health uncertainty continues is not sufficient.

I commend agency Division Directors and staff, who are themselves adjusting in real-time to the new realities of social distancing and teleworking, for issuing no-action relief aimed at providing market participants and registrants with necessary relief.[1]  These important actions have enabled market participants and registrants to focus their efforts on business continuity, market stability, and personnel management in these turbulent times.  I also applaud the CFTC’s recent actions to issue Customer Advisories notifying the public to be on high alert for fraudsters that are seeking to profit from recent market volatility related to COVID-19.[2]

I previously stated that the CFTC should temporarily table all non-critical policy work, shifting all our efforts and resources towards monitoring market and institutional stability and resiliency, prioritizing surveillance and enforcement, working with other regulators, and exhaustively engaging with market participants to consider necessary agency action that will alleviate market disruptions and support stable financial markets.[3]

Although markets continue to show signs of normalcy and stability since the most volatile days of the last two months, there remains significant uncertainty and a steep road ahead.  Consequently, I believe comment periods should be of sufficient length to allow market participants to focus on the current crisis, which the public and country continue to endure.  I stand ready to work with the Chairman, my fellow Commissioners, and market participants to reach agreement on meaningful extensions.

-CFTC-

Dissenting Statement of Commissioner Dan M. Berkovitz Regarding the Extension of Open Comment Periods  

April 10, 2020

I dissent from today’s extensions of comment periods for several pending proposed rulemakings because the extensions are too short.  Market participants and the public need more time to be able to provide high-quality comments on pending CFTC rulemakings in light of the disruptions resulting from the novel coronavirus pandemic. 

Public comments serve a critical role in the Commission’s rulemaking deliberative process on regulations that will impact market participants and safeguard derivatives markets for years to come.  Not providing the public sufficient time to obtain additional perspective and develop meaningful comments in these extraordinary times is bad public policy.

The Commission should afford market participants and interested members of the public comment periods substantially longer than the standard periods that apply absent these extraordinary circumstances.  At a minimum, the Commission should extend all pending comment periods by 60 days.  The two-week and two-day extensions granted by the Commission today are inadequate.     

The pandemic has disrupted—and destroyed—life across the country.  To date, the coronavirus has killed more than 12,800 Americans.[1]  The projected toll is expected to be much larger.[2]  Nearly 300 million Americans (over 90 percent of the population) are under stay-at-home orders.[3]  Nearly 10 million workers have filed jobless claims during the past two weeks.[4]   Schools are closed.  Non-essential travel is forbidden.  By no means can the current circumstances be described as—or treated as—business-as-usual. 

So far, the financial markets have been resilient and have performed their intended functions of price discovery and risk management.  Our market infrastructures—exchanges, clearinghouses, and swap execution facilities—have met the challenges posed by record volatility and volumes.  Market participants have continued to provide essential risk management tools to American companies to help them maintain operations through this time of national crisis.    

I commend the work done by the CFTC staff in monitoring these markets and for taking appropriate action to ensure market participants can continue to access the markets while observing social distancing requirements.  I also commend the Chairman and the agency’s executive leadership team for enabling all of us at the CFTC to telework and carry out the mission of the agency from safe locations in accordance with state and federal requirements and guidelines. 

The COVID-19 related regulatory relief granted by the CFTC over the past few weeks is clear recognition that the pandemic has disrupted normal operations of market participants.  Many functions cannot be performed in a timely manner due to physical displacements and other extraordinary demands on market participants.  Just three weeks ago, on March 17, 2020, in CFTC Letter No. 20-02, CFTC staff observed, “[d]isruptions in transportation and limited access to facilities and support staff as a result of the COVID-19 pandemic could hamper efforts of market participants to meet their regulatory obligations.”  The staff noted that no-action relief has been requested “where compliance is anticipated to be particularly challenging or impossible because of displacement of firm personnel from their normal business sites due to [social distancing] and closures . . . .”[5]  Subsequent staff no-action relief letters similarly recognized the difficulties that market participants face in complying with CFTC requirements and requests. 

To accommodate these extraordinary circumstances, the CFTC has granted relief from a variety of CFTC recordkeeping, reporting, and registration requirements.  Specifically, the CFTC has granted relief from requirements to: time-stamp records;[6] record oral conversations;[7] furnish Chief Compliance Officer Annual Reports to the Commission prior to September 1, 2020;[8] register as an Introducing Broker (IB);[9] submit annual compliance reports and fourth quarter financial reports prior to September 1, 2020;[10] comply with audit trail requirements;[11] file Form CPO-PQR pursuant to regulation 4.27;[12] submit commodity pool annual reports due on or before April 30, 2020;[13] distribute periodic account statements to pool participants due on or before April 30, 2020;[14] register as an IB (for foreign brokers acting under specified circumstances);[15] and register as a Major Swap Participant prior to September 30, 2020.[16]  

The Commission’s refusal to grant meaningful rulemaking comment period extensions stands in contrast to its swift recognition of requests by market participants for relief from the Commission’s reporting and registration regulations.  It is not clear why the Commission believes that market participants who state that it is difficult to comply with fundamental reporting or registration requirements nonetheless will be able to evaluate proposed rules and prepare comments with minimal delay.

Today’s extension of two weeks for the position limits rulemaking—a rule that has been a decade in the making—is insignificant given the scope and magnitude of the proposed changes to the existing position limits rules.  Further, the commodity markets have experienced unprecedented price movements and stresses over the past several weeks and commenters and the Commission would be well-served to review and take into account how the markets performed in this environment in fashioning and considering public comments.  There is no compelling reason to require public comments on a position limits rule that has been ten years in the making without fully considering how the market has performed in the recent conditions of extreme stress.

The two extensions of two days for the swap reporting rulemakings are not meaningful.  In fact, they are almost disrespectful to the many industry professionals that are attempting to meet the Commission’s comment deadlines under unprecedented circumstances.  Typically, comment periods are measured in days.  These extensions can be measured in hours.  I doubt any market participant will find these extensions of any benefit.

It is unreasonable to require market participants to prepare comments on complex rulemakings at the same time they are struggling to comply with fundamental recordkeeping, reporting, and registration obligations.  The Commission should extend these comments periods by at least 60 days. 

-CFTC- 

[1] Worldometer, Coronavirus Cases, as of April 8, 2020, available at https://www.worldometers.info/coronavirus/country/us/.

[2] See generally http://www.healthdata.org/.

[3] Philip Bump, Nearly all Americans are under stay-at-home orders. Some may have come too late., Washington Post, Mar. 2, 2020, available at https://www.washingtonpost.com/politics/2020/04/02/nearly-all-americans-are-under-stay-at-home-orders-some-may-have-come-too-late/.

[4] Rebecca Rainey and Norman McCaskill, ‘No words for this’:  10 million workers file jobless claims in just two weeks, Politico, Apr. 2, 2020,available at https://www.politico.com/news/2020/04/02/unemployment-claims-coronavirus-pandemic-161081. 

[5] CFTC Letter No. 20-02. 

[6] Id. (members of Designated Contract Markets (DCMs) and swap execution facilities (SEFs)); CFTC Letter No. 20-03 (futures commission merchants and IBs); CFTC Letter No. 20-04 (Floor Brokers); CFTC Letter No. 20-05 (Retail Foreign Exchange Dealers); CFTC Letter No. 20-06 (swap dealers).

[7] CFTC Letter No. 20-03; CFTC Letter No. 20-04; CFTC Letter No. 20-05; CFTC Letter No. 20-06; CFTC Letter No. 20-07 (SEFs).

[8] CFTC Letter No. 20-03; CFTC Letter No. 20-06.

[9] CFTC Letter No. 20-04.

[10] CFTC Letter No. 20-08 (SEFs).

[11] CFTC Letter No. 20-09 (DCMs, to the extent noncompliance is caused by displacement resulting from the COVID-19 pandemic response).

[12] CFTC Letter No. 20-11 (relief permits Small or Mid-Sized CPOs to file the required annual reports,  and Large CPOs to file quarterly reports for the first quarter 2020, up to 45 days later than required by regulation).

[13] Id.

[14] Id.

[15] CFTC Letter No. 20-12.

[16] CFTC Letter No. 20-10.