Good morning, I want to thank the Futures Industry Association (FIA) for inviting me to speak at your Expo 2012 in Chicago. I’m only sorry that Hurricane Sandy prevented me from being there for my scheduled speech yesterday. It would have been my fourth year at the Expo. I’m glad that you could arrange for me to speak to you from a distance.
Millions of Americans were affected by Sandy’s devastation this week, and we are all thinking of these families as they work to recover.
This week’s natural disaster also tested the resilience of everyone working in the markets.
I want to compliment all of the dedicated participants in the futures and swaps markets for the efforts in keeping markets functioning these last few days. All clearing and settlement functions worked smoothly. This is a testament to clearing members, clearinghouses, exchanges and the broad market.
Through your planning, farmers, ranchers, producers, commercial companies and financial institutions could continue to manage and hedge their risks.
This week’s weather disaster makes me think of an earlier disaster, albeit manmade, the 2008 financial disaster.
As we rebuild from this natural disaster, we’ll be examining ways to better protect the public from and be prepared for the next storm.
After 2008, we had to rebuild from a financial disaster. Similarly, we had to examine ways to better protect the public.
In so doing, it was appropriate to take things back to basics.
The role of finance and financial markets is to allocate and price both investments and risk throughout our economy.
It is to allow the public unfettered access to markets and information, and establish prices transparently and free of fraud and manipulation.
In sum, it’s about ensuring that finance serves the rest of the economy.
Though the markets and related regulation evolve over time, these goals have been met in the futures world for decades.
But as the financial system failed in 2008, the swaps market, which was basically not regulated, failed to meet these objectives.
The swaps marketplace operated without the basic transparency and common-sense reforms that Americans have benefitted from since the 1930s.
Those historic reforms established a foundation of transparency, competition and market integrity for the futures and securities markets. This democratization of our financial markets has led to many decades of economic growth and innovation.
The 2008 financial disaster caused great damage. Eight million American jobs were lost. Just like Hurricane Sandy, it affected millions of bystanders far and wide.
In response, Congress and the President borrowed from what has worked best in the futures markets in passing the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
Your meeting in Chicago is at a time of great change.
As of October 12, the new era of swaps market reform began. This will lead to significant benefits for the public. It also presents opportunities as well as challenges for market participants.
Futures markets participants have been rising to the occasion.
I’d like to briefly review with you three key initiatives that commissioners will consider and hopefully finalize by the end of this year: the clearing requirement, transparency reforms and the cross-border application of Dodd-Frank. Two other important items that we’re seeking additional public input on are enhancing customer protection and ensuring for the integrity of benchmark interest rates.
As we work through these initiatives, I believe it’s also critical that we continue our efforts to put in place aggregate position limits across futures and swaps, as Congress directed the CFTC to do.