Financial reform also means giving investors, consumers, retirees and businesses in America confidence that their funds are protected. The CFTC already has taken a number of steps in this area. First, the completed amendments to rule 1.25 regarding the investment of funds bring customers back to protections they had prior to exemptions the Commission granted between 2000 and 2005. Importantly, this prevents use of customer funds for in-house lending through repurchase agreements. Second, we completed the “LSOC rule” for swaps, as I mentioned earlier. And third, starting this November, clearinghouses will have to collect margin on a gross basis and futures commission merchants will no longer be able to offset one customer’s collateral against another and then send only the net to the clearinghouse.
Beyond these steps, Commissioners and staff are getting a lot of feedback from market participants on additional customer protection enhancements, including a package of ideas from the FIA. Staff also just finished a two-day, public roundtable on this topic, and is actively seeking further public input through our website and further meetings. To the extent constructive reforms emerge from this outreach and review, staff will put forward recommendations to the Commission for consideration.
Changing Market Structure
Financial reform also means the Commission must continue adapting our oversight to changing market structure, including emerging trends related to electronic trading. Commissioner O’Malia’s Technology Advisory Committee is focusing on this important issue.
I expect the Commission will consider putting out for comment a concept release concerning the testing and supervision of automated market participants. These concepts will be designed to address potential market disruptions that high frequency traders and others who have automated market access can cause.
The Commission also is looking to propose a rule on the reporting of ownership and control information for trading accounts. These rules would enhance the Commission’s surveillance capabilities and increase the transparency of trading to the Commission.
Investors, consumers, retirees and businesses in America also need a well-resourced CFTC with sufficient funding for both staff and technology. At about 700 people, we are about 10 percent larger than our peak in the 1990s. Since then, the futures market has grown fivefold, and Congress added oversight of the swaps market, which is nearly eight times bigger and far more complex than the futures market.
A well-resourced CFTC also is important for many of you in this room. As the agency moves from rule writing to implementation, market participants will continue seeking guidance. Without sufficient funding, however, we cannot be as efficient and timely in our responses as you would like. In addition, your businesses depend on the credibility of well-regulated U.S. futures and swaps markets. Without sufficient funding, your businesses – and the nation - cannot be assured that this agency can adequately oversee the futures and swaps markets. Only with funding sufficient to meet a greatly expanded mission can market participants have the confidence – confidence that you all rely upon – in the CFTC’s oversight of transparent and open markets that are free of fraud, manipulation and other abuses.
The financial crisis was devastating for investors, consumers, retirees and businesses in America. Congress responded to the crisis with reforms that bring transparency and competition to the swaps market and lower its risk to the rest of the economy. Financial reform also benefits pension funds, mutual funds, insurance companies, and community banks – and everyone who relies on them.
Some have raised concerns that these reforms will raise costs. But there are far greater costs – eight million jobs lost, millions forced out of their homes, retirement savings that disappeared, shuttered businesses and the uncertainty throughout the economy that came from risk, which spilled over from Wall Street.
Thank you again for inviting me, and I’d be happy to take questions.