The CFTC is undergoing a changing of the guard with President Obama’s nomination of Gary Gensler to serve as its next chairman. In his nomination hearing before the Senate Agriculture Committee on Feb. 25, Gensler said he would focus on preventing excessive speculation. “Position limits must be applied consistently to all markets and trading platforms and exemptions to them must be limited and well-defined,” he said.
This represents a change for CFTC leadership that has consistently found, based on numerous Commission studies, that supply and demand factors were the cause of commodity price movement and not excessive speculation. A staff report on this released in September found that the aggregate long positions of commodity index funds in Nymex crude oil actually dropped during the run up to $140.
The International Organization of Securities Commissions’ (IOSCO) Technical Committee’s Task Force on Commodity Futures Markets published a final report in March, which concluded that fundamentals rather than speculative activity were the plausible explanation for price changes.
IOSCO made a series of recommendations similar to those offered by the CFTC in September to increase transparency and international cooperation, but stopped short of language in several bills that squarely placed blame for energy price increases on speculators.
Gensler also called for a “broad regulatory regime for over-the-counter markets,” saying standardized derivatives should be brought to mandated centralized clearing and onto exchanges. “Regulations need to be developed for customized bilateral swaps while allowing commercial interests the benefit of these hedging tools. Credit default swaps, given their unique nature, also will require further regulation,” he said.
This is a departure for Gensler, who defended swap exemptions when he was assistant Treasury Secretary under then-President Clinton. He now is set to take over the CFTC with renewed pressure to merge the regulator with the embattled Securities Exchange Commission (SEC). The Investment Company Institute (ICI) called for a merger of the two regulatory agencies on March 3 in a white paper on regulatory reform. ICI recommended the creation of a systemic risk regulator as well as a new capital markets regulator that would cover the combined functions of the SEC and CFTC.
Such merger talk is not new. The Treasury Department’s “Blueprint for a Stronger Regulatory Structure” in March 2008 recommended a merger. At the time, futures industry leaders expressed worry that the mere size of the SEC would allow its model to become primary and the industry would lose the benefits of principles-based regulation. The blueprint recommended that the SEC adopt a core principle approach similar to the CFTC’s in preparation for a merger. The new push seems to be coming from the securities side, the regulatory failures of which have been well documented.
