CFTC meets on swaps, clearing orgs and position limits

The Commodity Futures Trading Commission (CFTC) held a public meeting on Dec. 16 on position limits for physical commodities, risk management requirements for clearing organizations and swap-related issues.

The following is CFTC Chairman Gary Gensler's opening statement at that meeting:

Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission to consider issuance of the following proposed rulemakings under the Dodd-Frank Wall Street Reform and Consumer Protection Act:

  • Confirmation, portfolio reconciliation and portfolio compression requirements for swap dealers and major swap participants;
  • Risk management requirements for derivatives clearing organization;
  • Swap execution facilities; and
  • Position limits for physical commodity derivatives;

Before we hear from the staff, I’d like to thank Commissioners Mike Dunn, Jill Sommers, Bart Chilton and Scott O’Malia for all their thoughtful work to implement the Dodd-Frank Act.

I’d like to welcome members of the public, market participants and members of the media to today’s meeting, as well as welcome those listening to the meeting on the phone or watching the live webcast.

This is the eighth public meeting to consider Dodd-Frank rulemakings. It has been a very active year for the Commission, and the staff of the CFTC has shown an extraordinary commitment to public service. The staff has organized eight Dodd-Frank rulemaking meetings in addition to the four other public CFTC meetings on issues related to our pre-Dodd-Frank authorities. The twelve open meetings we’ve had this year is more than we had – in aggregate – from 2000 through 2008.

In addition to working on rulemakings, CFTC staff was closely engaged in the legislative process to enact the Dodd-Frank Act. Staff worked many weekends to provide technical assistance to Capitol Hill and serve as a resource to lawmakers. In the 148 days since the President signed the Dodd-Frank Act into law, the staff of the CFTC has continued to work tirelessly. They have had more than 475 meetings with the public on rulemakings, had more than 300 meetings with other regulators and organized seven public roundtables. Including the rules that the Commission will consider today, CFTC staff has recommended 34 proposed rulemakings to the Commission, four advanced notices of proposed rulemaking, two interim final rules and one final rule to implement the Dodd-Frank Act.

This work is in addition to all of the work staff has done over the past year to oversee the futures markets, coordinate with the SEC to review the May 6 market events, successfully stand up two new advisory committees and bring greater transparency to the markets through enhanced Commitments of Traders reports, just to name a few. This year, with the help of Congress and the successful recruiting of the Divisions and human resources department, we finally got our staffing levels back to the number of people we had in 1999.

I am continually impressed by the knowledge, effectiveness, camaraderie and dedication of CFTC staff and Commissioners.

Now I will return to the business of today’s meeting. Today’s meeting will be the last one we have this year. I look forward to completing the meeting so that everyone can have a much-deserved break to celebrate the holidays with friends and family. We will actually start celebrating today with some holiday parties in the building, and I look forward to spending time with my colleagues.

But we will be back at this in January. Today we will vote on two meeting dates in January to consider additional Dodd-Frank rulemakings. We will announce the rulemaking proposals that the Commission will consider at least one week before those meetings.

The staff has worked very hard on the four rulemakings that the Commission is considering today. They will present thoughtful recommendations for how the Commission can best comply with its statutory obligations under the Dodd-Frank Act.

One of those obligations is to promote transparency in the swaps markets. Economists and policymakers have for decades recognized that market transparency benefits the public. The more transparent a marketplace is, the more liquid it is, the more competitive it is and the lower the costs for hedgers, borrowers and, ultimately, their customers. Transparency in the securities markets allows companies that need to raise or borrow capital to see and rely upon where other companies have priced their securities. Transparency in the futures markets allows hedgers and speculators to see where futures trade in a marketplace to get the best pricing. The Dodd-Frank Act brings similar transparency to the standardized swaps markets.

The bill promotes pre-trade transparency in the swaps markets by requiring standardized swaps – other than block trades – to be traded on regulated exchanges or swap execution facilities (SEFs). Exchanges and SEFs allow buyers and sellers to meet in an open, competitive marketplace, where market participants have the ability to make bids and offers to multiple market participants and where prices are made publicly available.

I believe that the proposed rule on SEFs that the Commission is considering today fulfills Congress’s intent to bring transparency and impartial access to the swaps markets.

Another important rulemaking that the Commission will consider today relates to position limits. When the CFTC set position limits in the past, the agency sought to ensure that the markets were made up of a broad group of market participants with a diversity of views. At the core of our obligations is promoting market integrity, which the agency has historically interpreted to include ensuring markets do not become too concentrated. The Dodd-Frank Act expanded the scope of the Commission’s mandate to set position limits to include certain swaps. Importantly, the proposed rulemaking re-establishes single-month and all-months-combined position limits for energy and metals markets. It also would fulfill Congress’s mandate to have aggregate position limits, which includes both futures and swaps.

We also are taking up two other important proposed rulemakings that would help lower risk in the entire derivatives marketplace. The first relates to risk management in clearinghouses, including ensuring that swaps clearinghouses provide for more inclusive membership through fair and open access. The second relates to some critical business conduct standards for swap dealers.

We look forward to receiving public comments on all of the proposed rules we are considering today. Each of the rules, as well as fact sheets and “Questions and Answers” on the rules, will be posted to our website shortly.

Before I turn to my fellow commissioners for opening statements, I would like to wish everyone a joyous holiday and happy New Year.

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