Thank you, Walt, for that kind introduction. I also would like to thank the Futures Industry Association (FIA) for the invitation – I’m honored that you’ve invited me to speak each of these last five years.
Ever since Adam Smith and the Wealth of Nations, economists have consistently written that access to and transparency in markets benefits the broad public.
President Roosevelt understood this when he asked Congress during the Great Depression to bring transparency, access and competition to the commodities and securities markets.
The reforms of the 1930s transformed markets. They helped establish the foundation for the U.S. economic growth engine for decades.
Those reforms have given farmers, ranchers, producers, merchants and commercial companies confidence to use the futures market to manage their risks. They are able to lock in the price of a commodity at harvest time, or lock in an interest rate or currency rate, and focus on that which they do best – producing goods and services for the economy.
The swaps market emerged in the 1980s. It remained outside these time-tested reforms until last year.
Both futures and swaps, though, are just two forms of the same thing – derivatives. Both had become essential to our economy and to the way people and businesses manage risks.
The swaps market also had grown to dwarf the futures market in total notional outstanding. We now know the swaps market is $400 trillion in size, compared to the $30 trillion futures market.
Lacking of common-sense rules of the road, the swaps market contributed to the 2008 crisis. Need I remind anyone about AIG.
It became time to bring this vast, dark market into transparency. It became time to ensure that the broad public gained the benefits of central clearing and oversight of dealers.
Thus, the President and Congress passed reform borrowing from what had worked best for decades in the futures market.
Now, the swaps marketplace has been transformed.
It’s been a remarkable journey these past five years – and all of you have been part of this journey. It not only took 65 finalized rules, orders and guidances by the CFTC. Your thousands of comments, meetings and questions were a critical part of the process as well. You worked hard – with real costs and against deadlines – to implement these reforms to bring us to a new marketplace.
Foremost, the swaps marketplace now has transparency that simply did not exist in 2008.
The public now can see the price and volume of each swap transaction as it occurs. This post-trade transparency spans the entire market, regardless of product, counterparty, or whether it’s a standardized or customized transaction.
This information is available, free of charge, to everyone in the public. The data is listed in real time – like a modern-day tickertape – on the websites of each of the three swap data repositories.
Regulators get even greater transparency. Though there is more work to be done regarding the data flowing into data repositories, we now are able to see and filter the details on each of the 1.8 million transactions and positions in the data repositories.
Further, starting last month, the public – for the first time – has been benefitting from new transparency, access and competition on regulated swap trading platforms.
Economists have known the benefits of such transparency since the time of Adam Smith; it just wasn’t a reality in the swaps marketplace.
Now, as a result of reforms, swap execution facilities (SEFs) are required to provide all market participants with impartial access. They must provide dealers and non-dealers alike the ability to make and respond to bids, offers and requests for quotes. This is a basic tenant that Adam Smith and so many economists have laid out – that access and transparency promote competition and benefit the economy.
We now have 18 temporarily registered SEFs where more than a quarter of a trillion dollars in swaps trading is occurring on average per day. That is a big number by any measure.
We’ll continue to address questions as they arise to help smooth the transition to the transparency and impartial access of exchange trading.
Addressing one such question, as our cross border guidance directs, if a multilateral trading platform is a U.S. person, or it is located or operating in the U.S., it should register.
A multilateral trading platform that provides persons located in the U.S. with the ability to trade or execute swaps on the platform’s market (either directly or indirectly through an intermediary), should register.
Registration applies whether those persons are U.S. persons or non-U.S. persons whose personnel or agents are located in the U.S. This is regardless of the location where the swap is ultimately booked, including in circumstances where a swap dealer arranges, negotiates, or executes the terms of a swap in a non-U.S. branch, but trades swaps on a multilateral swaps trading platform using personnel or agents of the swap dealer located in the U.S.
This will trigger some SEF registrations for foreign-based platforms that are already registered with their home country. For instance, one Australian platform is going to register with the CFTC, and we’re working with the Australian home country regulators. We’re prepared to figure out where we might defer to those home country regulators.