CFTC Says New Rules Will Get Vote
By Sarah N. Lynch
September 22 (Wall Street Journal)
WASHINGTON—Regulators will propose a series of new rules for derivatives clearinghouses next week and set a deadline for firms to report some of their swap trades, Commodity Futures Trading Commission Chairman Gary Gensler said Tuesday.
At a meeting slated for Oct. 1, the commission will vote in public for the first time on proposals to implement the over-the-counter derivatives provisions in the Dodd-Frank financial-regulation law enacted in July.
In a speech before the U.S. Chamber of Commerce, Mr. Gensler said the agency will propose governance procedures at clearinghouses, exchanges and swap trading platforms. It will also propose rules targeting clearing venues that are deemed "systemically important" to the U.S. financial market.
In addition, the CFTC will establish a timeline for firms to report data about outstanding swap trades that were executed before the passage of Dodd-Frank, Mr. Gensler said. The data on these privately negotiated trades must be submitted to regulators or to specialized swap data warehouses in an effort to bolster transparency in the opaque $615 trillion over-the-counter derivatives market.
By mid-September 2011, Mr. Gensler said, he envisions that all swap trades will have to be reported in real time. "Our goal is to publish proposed rules this fall," he said.
Although Mr. Gensler spoke about bringing sweeping regulatory changes to the market, he also sought to assuage the concerns of many members of the U.S. Chamber who fear they may still be captured by the new rules. These "end-user" firms use swaps as hedging tools to protect their balance sheets from volatile price swings or interest-rate fluctuations.
With support from the Chamber-backed Coalition for Derivatives End-Users, they persuaded Congress not to force them to use a clearinghouse, which guarantees trades, or post collateral. Now, their lobbying efforts have shifted to the market regulators writing the details of the rules to ensure the exemptions are preserved.
Mr. Gensler indicated Tuesday that many of the companies concerned about the new rules probably have nothing to fear, noting that the law "is clear." Only entities like hedge funds, insurance companies and swap dealers or firms that pose risks to the broader economy will be forced to clear their routine swaps, he said.
The Dodd-Frank law, named after Democratic congressmen Sen. Chris Dodd and Rep. Barney Frank, gives the CFTC and the Securities and Exchange Commission broad new powers to police the over-the-counter derivatives market. It will require key players in the market, including swap dealers and major traders, to execute many of their deals on trading platforms and route their swaps through clearinghouses. If a swap isn't suitable for clearing, then each counterparty to the trade will have to post collateral and abide by stricter capital standards.
Although Congress excluded "end-users" from these regulations, concerns still linger because the law gives the CFTC and SEC a lot of discretion in how they craft their rules.
The agencies must flesh out the definitions of a swap dealer and a major swap participant, the two regulatory categories that will be subject to the new law. If they create a very wide definition, then some end-users fear they will be ensnared.
Mr. Gensler has said he suspects about 200 different entities will qualify under the definition of a swap dealer. As long as a company is not considered a dealer and isn't "substantial enough to be relevant to the economy," then the company will likely qualify for an exemption, he said.
Addressing the members of the Coalition for Derivatives End-Users, he said most of them won't be deemed as major swap participants unless their collapse would constitute having "another AIG case on our hands."
On the proposals to be unveiled next week, meanwhile, Mr. Gensler said the agency will float some rules that will apply to all clearinghouses and some requirements that will specifically target the systemically important venues.
Under the law, the newly established Financial Stability Oversight Council of regulators, including the CFTC, SEC and Federal Reserve, will have authority to decide which clearing organizations are important to the overall system. If they are dubbed systemically important, they will be subject to heightened oversight and also may qualify for access to the Fed's discount window.
The CFTC is moving ahead on governance and certain swap reporting rules first, he said, because the law gives regulators less time to implement those provisions.
"We need to be conscious of the clock Congress set for us," he said. Meanwhile, as regulators in the U.S. are busy writing rules, Mr. Gensler made it clear that there is still much cross-border work to be done as well.
He announced that he plans to travel to Brussels next week where he will consult with the European Commission on its new proposal to regulate derivatives markets there. He said that Europe's proposal and the Dodd-Frank law are "consistent in large measure."
September 22 (Wall Street Journal)
WASHINGTON—Regulators will propose a series of new rules for derivatives clearinghouses next week and set a deadline for firms to report some of their swap trades, Commodity Futures Trading Commission Chairman Gary Gensler said Tuesday.
At a meeting slated for Oct. 1, the commission will vote in public for the first time on proposals to implement the over-the-counter derivatives provisions in the Dodd-Frank financial-regulation law enacted in July.
In a speech before the U.S. Chamber of Commerce, Mr. Gensler said the agency will propose governance procedures at clearinghouses, exchanges and swap trading platforms. It will also propose rules targeting clearing venues that are deemed "systemically important" to the U.S. financial market.
In addition, the CFTC will establish a timeline for firms to report data about outstanding swap trades that were executed before the passage of Dodd-Frank, Mr. Gensler said. The data on these privately negotiated trades must be submitted to regulators or to specialized swap data warehouses in an effort to bolster transparency in the opaque $615 trillion over-the-counter derivatives market.
By mid-September 2011, Mr. Gensler said, he envisions that all swap trades will have to be reported in real time. "Our goal is to publish proposed rules this fall," he said.
Although Mr. Gensler spoke about bringing sweeping regulatory changes to the market, he also sought to assuage the concerns of many members of the U.S. Chamber who fear they may still be captured by the new rules. These "end-user" firms use swaps as hedging tools to protect their balance sheets from volatile price swings or interest-rate fluctuations.
With support from the Chamber-backed Coalition for Derivatives End-Users, they persuaded Congress not to force them to use a clearinghouse, which guarantees trades, or post collateral. Now, their lobbying efforts have shifted to the market regulators writing the details of the rules to ensure the exemptions are preserved.
Mr. Gensler indicated Tuesday that many of the companies concerned about the new rules probably have nothing to fear, noting that the law "is clear." Only entities like hedge funds, insurance companies and swap dealers or firms that pose risks to the broader economy will be forced to clear their routine swaps, he said.
The Dodd-Frank law, named after Democratic congressmen Sen. Chris Dodd and Rep. Barney Frank, gives the CFTC and the Securities and Exchange Commission broad new powers to police the over-the-counter derivatives market. It will require key players in the market, including swap dealers and major traders, to execute many of their deals on trading platforms and route their swaps through clearinghouses. If a swap isn't suitable for clearing, then each counterparty to the trade will have to post collateral and abide by stricter capital standards.
Although Congress excluded "end-users" from these regulations, concerns still linger because the law gives the CFTC and SEC a lot of discretion in how they craft their rules.
The agencies must flesh out the definitions of a swap dealer and a major swap participant, the two regulatory categories that will be subject to the new law. If they create a very wide definition, then some end-users fear they will be ensnared.
Mr. Gensler has said he suspects about 200 different entities will qualify under the definition of a swap dealer. As long as a company is not considered a dealer and isn't "substantial enough to be relevant to the economy," then the company will likely qualify for an exemption, he said.
Addressing the members of the Coalition for Derivatives End-Users, he said most of them won't be deemed as major swap participants unless their collapse would constitute having "another AIG case on our hands."
On the proposals to be unveiled next week, meanwhile, Mr. Gensler said the agency will float some rules that will apply to all clearinghouses and some requirements that will specifically target the systemically important venues.
Under the law, the newly established Financial Stability Oversight Council of regulators, including the CFTC, SEC and Federal Reserve, will have authority to decide which clearing organizations are important to the overall system. If they are dubbed systemically important, they will be subject to heightened oversight and also may qualify for access to the Fed's discount window.
The CFTC is moving ahead on governance and certain swap reporting rules first, he said, because the law gives regulators less time to implement those provisions.
"We need to be conscious of the clock Congress set for us," he said. Meanwhile, as regulators in the U.S. are busy writing rules, Mr. Gensler made it clear that there is still much cross-border work to be done as well.
He announced that he plans to travel to Brussels next week where he will consult with the European Commission on its new proposal to regulate derivatives markets there. He said that Europe's proposal and the Dodd-Frank law are "consistent in large measure."