Remarks of Timothy G. Massad at the CME Global Financial Leadership Conference
Thank you for inviting me today, and I thank Terry Duffy for that kind introduction. CME has been a leader in the derivatives markets for many years, and Terry Duffy has been a big part of that. I also appreciate CME’s support and involvement in our implementation of regulatory reforms, and I look forward to continuing to work together in the months ahead.
Today, I would like to discuss where we are in the process of financial regulatory reform. Let me begin by first telling you a bit about my background, and how it shapes my views. Then, I want to share a few thoughts on the historical context of the reforms we are implementing, because that also shapes my views on how we tackle the challenges before us. Then, I would like to turn to some of the specific challenges we face.
First, prior to this job I was at Treasury overseeing the TARP. That makes it easy to remember why we are implementing these reforms. Our country lost 8 million jobs and thousands of business. Having spent five years helping our nation recover from that crisis, having met many struggling Americans coping with sudden unemployment and facing foreclosure, there is not a day that goes by that I don’t think about the importance of making sure that doesn’t happen again. That experience also illustrated the importance of bold action. The U.S. responded to the crisis with overwhelming force and speed, and a number of creative initiatives, of which TARP was just one.
Much of the leadership in taking that action came from one individual who you will recognize later today—former Chairman of the Federal Reserve, Ben Bernanke. Let me add my personal thanks to you, Ben, for your leadership.
My experience as a private sector lawyer also informs my outlook. For twenty five years, I worked with businesses and governments all over the world on all types of transactions. As a young lawyer, I was part of a small group of lawyers that drafted the original ISDA master swap agreements in the late 1980s, which were the foundation for the industry. So I appreciate the importance of these markets to a wide variety of businesses. I appreciate the role the United States has played for decades in setting the gold standard for financial market regulation, and the importance of good regulation to the long-term success of our financial markets.
So as I think about the challenges we face, I draw on those experiences.
Putting today’s Regulatory Reform in Historical Context: The Importance of U.S. Leadership
I also think about the historical context. Consider the history of the development of the securities and futures markets in this country.
In the 1930s, we created a framework for securities regulation and trading which proved tremendously successful. Many of its mandates such as public reporting by listed companies were revolutionary at the time. Many felt the requirements would be the death knell of capitalism. When the Securities Exchange Act was passed, the President of the New York Stock Exchange said it was “a menace to national recovery.” History has proved otherwise.
Today, these “menacing” requirements are about as controversial as seat belts. Indeed, they have been the foundation for the growth of our securities markets.
The basic principles of our securities laws have remained true to this day. We require upfront disclosure on the securities being sold, we regulate how securities are offered, sold and traded to prevent fraud and manipulation, and we engage in enforcement to ensure compliance with those requirements. But our laws generally do not restrict what can be offered and sold. We do not make normative judgments about whether there is an economic justification for a product, nor do regulators set the price at which a product is sold.
The regulation of the futures market is similar. Congress created a framework for regulation which properly balanced strong oversight while allowing innovation. The CFTC was established in 1975 as a dedicated regulator for the futures market, and that market has grown by leaps and bounds over the last 40 years. In another example of wise, bold leadership, Leo Melamed, chairman emeritus of CME, who is here today, early on recognized the importance of regulation to the growth of the futures markets and supported the agency when many others took a different view.
We have created in our securities and futures markets a sensible framework for regulation – one that has bolstered integrity and transparency, while at the same time, supporting innovation and competition. This has led to dynamic markets that attract liquidity and participants from around the world.