Last summer, we turned the corner and started finalizing rules. To date, we’ve completed 28 rules with just over 20 more to go. Attached to this testimony is a more complete list of rules we’ve finished, as well as proposed rules. It’s my anticipation that we will finish most of the rule-writing work by this summer; however, it’s possible that a handful won’t be finished until later this year. While the statute generally called for completion of the rules in one year, for most of them, it has taken us longer. We are completing rules in a thoughtful, balanced way – not against a clock.
To promote transparent and competitive markets, we’ve been able to complete seven key reforms. Among these reforms, the Commission already has begun to receive position information for large traders in the swaps markets for agricultural, energy and metal products. Based on completed registration rules, three swap data repositories have already filed with the CFTC. In December, we finalized rules for the reporting of swaps transactions both to the public and to regulators, which will begin to take effect as early as July of this year. For the first time, the public and regulators will have specific information on the swaps markets, in aggregate and transaction-by-transaction. By contrast, none of this information was available leading up the 2008 crisis.
Looking forward, we hope to complete rules with regard to designated contract markets (DCMs), followed later this spring by rules for swap execution facilities (SEFs). These rules will be critical to bringing transparency and the benefits of competition to both buyers and sellers in the swaps market before they transact.
Last week, the Commission proposed a new block trading rule with a revised methodology for determining block sizes that benefitted from public input and a review of market data. As we have discussed in this Committee during previous hearings, the Commission is mindful that there are times when a reproposal of a rule is necessary to help ensure the Commission gets it right.
The CFTC also has made significant progress on rules to bring swaps into central clearing. We completed rules establishing robust risk management requirements for derivatives clearing organizations. We finished a rule on the process for clearinghouses to submit swaps that may be mandated for central clearing. In addition, the Commission adopted an important customer protection enhancement, the so-called “LSOC rule” (legal segregation with operational commingling) for swaps. It prevents clearing organizations from using the cleared swap collateral of non-defaulting, innocent customers to protect themselves and their clearing members.
To further facilitate broad access to these markets and promote competition, the Commission hopes in the near term to consider final rules on client clearing documentation, risk management, and so-called straight-through processing, or sending transactions immediately to the clearinghouse upon execution.
We also are looking to soon finalize the end-user exception. Consistent with congressional intent, our proposal would ensure non-financial companies using swaps to hedge or mitigate commercial risk will not be required to bring swaps into central clearing. The Commission’s proposed rule on margin for swap dealers likewise provides that such non-financial companies will not have to post margin for uncleared swaps.