Each part of our nation’s economy relies on a well-functioning derivatives marketplace. The derivatives market – including both the regulated futures market and the heretofore unregulated swaps market – is essential so that producers, merchants and end-users can manage their risks and lock in prices for the future. Derivatives help entities focus on what they know best – innovation, investment and producing and selling goods and services – while finding others in a marketplace willing to bear the uncertain risks of changes in prices or rates.
The U.S. swaps and futures markets approximate $300 trillion and $40 trillion notional amount, respectively – that’s more than $22 of derivatives for every dollar of goods and services produced in the U.S. economy. That is why it is essential that we ensure that these markets work for the benefit of the American public; that they are transparent, open and competitive; and that they do not allow risk to spread through the economy.
CFTC’s Upcoming Agenda
The CFTC is focused on completing the rule-writing process to implement the Dodd-Frank Act. We are focused on considering these rules thoughtfully – not against a clock. In that context, I would like to mention some of the work that CFTC staff is nearest to bringing forward for Commission consideration.
Our next public meeting is scheduled for a week from today – on October 18. Next in the queue of staff recommendations are final rules related to clearinghouse core principles and position limits. In addition, we may consider staff recommendations providing further exemptive relief – consistent with the CFTC’s July 14th Exemptive Order – from certain provisions of Dodd-Frank’s Title VII requirements.
Staff also is working very closely with Securities and Exchange Commission (SEC) staff on three important joint rulemakings: those related to further defining entities and products as well as those related to reporting for investment advisors. This work is furthest along regarding entity definitions, including swap dealer, major swap participant and eligible contract participant, as well as the investment advisor reporting rules. When the Commission considers the entity definition rule, we hope to also consider swap dealer registration rules.
Other final rules nearing Commission consideration include those on external business conduct standards, foreign boards of trade, and swap data reporting. In addition, in our queue are rules on designated contract markets, internal business conduct rules, real time reporting, segregation for cleared swaps, and the end-user exception.
In July, the CFTC finalized a rule on the process for review of swaps for mandatory clearing. Under this congressionally mandated process, the Commission has 90 days to review a clearinghouse’s submission and determine whether the swap is required to be cleared. Though clearinghouses will decide much of the timing, it is likely that they will not file submissions until later this fall or in the winter. If, therefore, clearinghouses were to file submissions towards the end of this year, a clearing mandate may take effect towards the beginning of the 2nd quarter of next year. Under recently proposed rules on implementation phasing, market participants would have an additional three, six or nine months to come into compliance with the clearing mandate, depending on the swap’s counterparties.