Before I take questions, I wanted to share a few thoughts looking forward.
First, the CFTC largely has moved beyond rule writing and initial compliance dates. We have moved on to reviewing registered entities and registrants to ensure they fully come into compliance.
As we have done for many years, we are doing this through examinations, surveillance, enforcement and issuing guidance and advisories. To smooth implementation, we will continue to work with market participants as needed.
We know the markets are undertaking a significant effort to ensure a smooth transition, including steps to incorporate guidance and advisories. We will continue working with market participants, but when there is a question, the best thing to do is to come into compliance with all of the CFTC’s rules and guidance.
Second, the CFTC really does need more resources.
How else can we ensure that transparency, access and competition are a reality and not something just in the rulebooks? With 670 people, we are only 36 people more than 20 years ago, and we’ve got a whole lot more to do. The futures market has grown significantly, and we now also oversee the swaps market, which is ten times the size in open interest and far more complex.
In the face of these new responsibilities, the CFTC already has shrunk 6 percent. Further, we were forced to notify employees of an administrative furlough for up to 14 days this fiscal year.
This isn’t good for the American public. This isn’t good for the branding of the markets or your businesses.
Third, we must deal with the fact that LIBOR is more akin to fiction than fact. Through five settlements the CFTC has brought against banks, we have seen how the public trust can be violated through bad actors readily manipulating benchmark interest rates. As LIBOR and Euribor are not anchored in observable transactions, they have been and can be readily and pervasively rigged.
This will mean changes in both the futures and swaps markets, as nearly 70 percent of the futures market references LIBOR and two-thirds of the swaps market references LIBOR or Euribor. The work of the Financial Stability Board to find alternatives and consider potential transitions to these alternatives is critical.
Fourth, we have witnessed a fundamental shift in markets from human-based trading to highly automated trading. The Commission looks forward to hearing back on our concept release and making appropriate proposals regarding automated and high frequency trading.
Fifth, I believe it’s appropriate for the CFTC to seek public comment on a futures block rule proposal. Earlier this year, the Commission finalized a block rule for swaps. To preserve the pre-trade transparency that has been a longstanding hallmark of the futures market, it is critical to do so for futures as well.
Let me close by thanking all of you. These last five years have been a remarkable journey. The futures market performed well straight through the crisis. That’s why we borrowed so much from futures in an effort to bring much-needed reform to the swaps market.
On a personal note, I want to thank the CME and Terry Duffy. I first met Terry in 2007 at a dinner he hosted at Morton’s Steakhouse in Chicago. We agreed on many things that evening. That’s actually been the case ever since. We’ve had some differences, but by in large, we’ve had the same goal: bringing transparency, access and competition to the markets.
I look forward to your questions.