Good morning. Thanks Jeff for that introduction, and I thank the Futures Industry Association (FIA) for inviting me.
Before getting starting, I’d like to thank Commissioners Sommers, Chilton, O’Malia and Wetjen for their hard work and dedication to improving the markets.
I also want to commend John Damgard on a remarkable career. He’s one of the few in this audience who took part in founding the modern futures industry. John, I’m not suggesting you were in Chicago in the 1860s. When John worked for the Department of Agriculture in the 1970s, he was instrumental in the creation of the Commodity Futures Trading Commission (CFTC). John later was asked to lead the FIA, and since then, the futures market has grown thirtyfold. And the swaps market, invented just one year prior to John joining the FIA, has grown to dwarf the futures market.
So, John’s career is bookended by the Commodity Futures Trading Commission Act in 1974 that created the CFTC and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010, which brought swaps under the CFTC’s oversight. John, you can take a break now because futures and swaps are both under the Commission you helped create, and we’re building on futures market reforms that you did so much to promote. John and I share a view that derivatives markets – both futures and swaps – must be transparent, open and competitive to work best for the American people.
I also want to congratulate Walt Lukken, one of my predecessors at the CFTC, on becoming the next head of the FIA.
Financial Reform
It is critical that the derivatives markets – both futures and swaps – work for the farmers, ranchers, producers and commercial companies in the real economy. Futures and swaps markets allow companies to manage risk and focus on what they do best – servicing customers, producing products and investing in our country’s future.
As it’s the real economy – the non-financial side – that provides 94 percent of private sector jobs, it’s all the more important that these markets work for this side of the economy.
The financial side of the economy also benefits from greater transparency and competition in the derivatives markets. Investors, retirees, homeowners and customers of pension funds, mutual funds, community banks and insurance companies all benefit from the lower costs and greater pricing information of more transparent markets.
In 2008, the financial system and the financial regulatory system failed America. Though there were many causes of the crisis, the unregulated swaps market helped concentrate risk in the financial system that spilled over to the real economy. The crisis led to eight million Americans losing their jobs, millions of families losing their homes, and thousands of small businesses closing their doors.
In 2010, Congress and the President came together to pass the historic Dodd-Frank Act, which brings much-needed reform to the swaps market. This reform borrowed from what has worked best in the futures industry to protect investors, consumers, retirees and businesses in America.
In short, three key goals of the law are:
• Bringing transparency and competition to the swaps market;
• Lowering the risks of the swaps market to the real economy; and
• Enhancing market integrity to best protect the public.
Last summer, the CFTC turned the corner on financial reform from our proposal phase and started finalizing rules. We’ve completed 28 with just over 20 to go. We are completing rules in a thoughtful, balanced way to get them right – not against a clock. And with 16 public roundtables, 3,000 comment letters before we proposed rules, 28,000 comments in response to proposals, and 1,400 meetings with the public to date, there’s a lot to consider.
Financial reform is more than just Dodd-Frank. In 2012, the CFTC also is looking at ideas to enhance futures and swaps customer protections and to adapt our oversight of these markets to accommodate an ever-changing market structure.
Transparency
At about $300 trillion notional size, the U.S. swaps market represents the largest dark pool in our financial markets. The Dodd-Frank Act squarely addresses this by shining bright lights of transparency – to the public and to regulators – on this market for the benefit of investors, consumers, retirees and businesses in America.
It does so post-trade by providing the public information – in real time – on the pricing and volume of every transaction upon completion. It does so pre-trade by providing all market participants the opportunity to come together to transact on transparent and competitive trading platforms.
The public and swaps customers will benefit from daily valuations over the life of all swaps. The public gets to see daily valuations of cleared swaps, and counterparties get to see swap dealers’ valuations of uncleared swaps.
The CFTC has completed many of these key reforms to bring transparency to the swaps market. We have begun to receive position information for large traders in the swaps markets for agricultural, energy and metal products. Starting this summer, real-time reporting to the public and to regulators will begin on nearly every swap transaction. Later this year, market participants will benefit from the transparency of daily valuations over the life of their swaps.
By contrast, leading up to the 2008 crisis, the public and regulators had very limited swaps market data.
Looking forward, we have three remaining transparency rules to complete: block sizes, designated contract markets and swap execution facilities.