Good morning Chairman Johnson, Ranking Member Shelby and members of the Committee. I thank you for inviting me to today’s hearing on implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act. I am pleased to testify on behalf of the Commodity Futures Trading Commission (CFTC). I also thank my fellow Commissioners and CFTC staff for their hard work and commitment on implementing the legislation.
I am honored to appear at today’s hearing alongside fellow regulators with whom we are working so closely to implement the Dodd-Frank Act. We have consulted and coordinated closely with the Securities and Exchange Commission (SEC), Federal Reserve Board, Treasury Department, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency and other regulators on rulemakings to oversee the swaps markets. Throughout this process, interagency cooperation has been extraordinary and has improved our proposed rulemakings.
Before I move into the testimony, I want to congratulate Chairman Johnson on becoming Chairman of the Committee. I look forward to working with you and all Members of the Committee.
The Dodd-Frank Act
On July 21, 2010, President Obama signed the Dodd-Frank Act. The Act amended the Commodity Exchange Act (CEA) to establish a comprehensive new regulatory framework for swaps and security-based swaps. Title VII of the Act, which relates to swaps, was enacted to reduce risk, increase transparency and promote market integrity within the financial system by, among other things:
1. Providing for the registration and comprehensive regulation of swap dealers and major swap participants;
2. Imposing clearing and trade execution requirements on standardized derivatives products;
3. Creating robust recordkeeping and real-time reporting regimes; and
4. Enhancing the Commission’s rulemaking and enforcement authorities with respect to, among others, all registered entities and intermediaries subject to the Commission’s oversight.
The reforms mandated by Congress will reduce systemic risk to our financial system and bring sunshine and competition to the swaps markets. Markets work best when they are transparent, open and competitive. The American public has benefited from these attributes in the futures and securities markets since the great regulatory reforms of the 1930s. The reforms of Title VII will bring similar features to the swaps markets. Lowering risk and improving transparency will make the swaps markets safer and improve pricing for end-users.
Title VIII of the Dodd-Frank Act gives the Financial Stability Oversight Council (FSOC) and the Federal Reserve Board important roles in clearinghouse oversight by authorizing the Council to designate certain clearinghouses as systemically important and by permitting the Federal Reserve to recommend heightened prudential standards in certain circumstances. It also gives the CFTC heightened authorities with respect to those clearinghouses that are deemed systemically important by the FSOC.