Gensler testifies to House committee on Dodd-Frank

Good morning Chairman Lucas, Ranking Member Peterson and members of the Committee. I thank you for inviting me to today’s hearing on the Commodity Futures Trading Commission’s (CFTC) progress thus far on rules relating to entity and product definitions under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. I am pleased to testify on behalf of the CFTC. I also thank my fellow Commissioners for their hard work and commitment on implementing the legislation.

The Dodd-Frank Act for the first time brought oversight to the swaps market. By bringing comprehensive regulation to swap dealers and mandating that standardized swaps be brought to clearing and transparent trading, the Dodd-Frank Act helps lower risk to the American public and bring transparency, openness and competition to these markets.

The Dodd-Frank Act was very detailed with regard to entity and product definitions as well as the exception from clearing for non-financial end-users. Congress did direct the CFTC, however, working with the Securities and Exchange Commission (SEC) and in consultation with the Federal Reserve, to further define those entities and products. The Dodd-Frank Act further provides the CFTC with authority to write rules with regard to the non-financial end-user clearing exception.

This afternoon I will discuss the joint rule on entity definitions that was proposed last fall, the CFTC’s and SEC’s work to propose a product definitions rulemaking and the CFTC’s proposed rule with regard to the non-financial end-user exception from clearing. I also will briefly discuss the CFTC’s rule-writing process and authority to phase effective dates of final rules. The CFTC and the SEC jointly released an advance notice of proposed rulemaking in September to seek public comment on entity and product definitions. Those comments informed both agencies as we worked to propose a joint rule on entity definitions and as we continue to work on a product definitions proposed rulemaking.

Entity Definitions Rulemaking

The Dodd-Frank Act defined two categories of market participants that would be subject to comprehensive regulation by the CFTC: swap dealers and major swap participants. This comprehensive regulation includes capital and margin requirements, business conduct standards and recordkeeping and reporting requirements.

On December 1, 2010, the CFTC proposed a rule jointly with the SEC to fulfill Congress’s direction to further define the terms “swap dealer,” “major swap participant,” “security-based swap dealer,” “security-based major swap participant” and “eligible contract participant.” The comment period ran through February 22, 2011. There are presently 180 comments in the comment file, including those that were received after the comment period closed. The Commission is considering all of these comments.

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