CFTC celebrates 40 years
Yesterday was actually the 40th anniversary of the CFTC. The CFTC was formed as a separate agency on April 21, 1975, having been part of the Department of Agriculture prior to that time. What the agency has accomplished during that time is a credit to the CFTC staff. We have an incredibly dedicated and talented team whose tireless efforts have greatly benefitted the American public. I also thank my fellow commissioners for their efforts, particularly their willingness to work constructively together.
The growth of the derivatives markets over the last 40 years is really astounding. The sensible regulatory framework created by the CFTC for the futures market was a foundation for that market’s success. It has helped insure integrity and transparency while facilitating growth and innovation. Today we face a similar challenge in the swaps market – we must create a regulatory framework that achieves the goals of transparency and integrity while enabling the market to continue to grow and thrive.
And today, I want to update you on where we stand on creating that framework.
The New Regulatory Framework
Now unlike the futures and options market, the swaps market grew to be a global market in the absence of regulation. Moreover, while regulation of the futures and options market occurred gradually over time as the market evolved, the decision to create a regulatory framework for the swaps market occurred as a result of the worst financial crisis since the Great Depression. So these differences make our task particularly challenging.
· As you know, the G-20 nations agreed to bring the over-the-counter derivatives market out of the shadows through four key commitments: central clearing, market oversight, transparent trading, and data reporting. Congress enacted those four G-20 commitments in the Dodd-Frank Act, and gave primary responsibility to the CFTC. Over the last five years, we have made substantial progress implementing each.
- Clearing through central counterparties is now required for most interest rate and credit default swaps. About 75% of the transactions in our market, measured by notional amount, are cleared, compared to about 15% in December 2007.
- We have increased oversight of major market players through our registration and regulation of swap dealers – more than 100 are now provisionally registered – and major swap participants.
- Swaps transactions must now be reported to registered swap data repositories. There are now four data repositories in the U.S., and more than 20 others internationally, and thousands of participants are providing trade data which improves price discovery, increases market transparency, and enhances supervisory oversight.
- Transparent trading of swaps on regulated platforms has begun. We currently have 22 swap execution facilities temporarily registered with 3 more applications pending. According to information compiled by the International Swaps and Derivatives Association, SEF trading accounted for about half of total volume in 2014.
But there is more work to do in all these areas. Let me briefly note some of the general issues we have been working on, and then talk specifically about some trading and data issues that I think will be of great interest to you.
Over the last ten months, one of our priorities has been to work on fine-tuning the new rules so that the new framework works effectively and efficiently for market participants. In particular, we have made a number of changes to address concerns of commercial end-users who depend on these markets to hedge commercial risk day in and day out, because it is vital that these markets continue to serve that essential purpose. This has included adjustments to reporting requirements and measures to facilitate access to these markets by end-users. We will continue to do this where appropriate. With reforms as significant as these, such a process is to be expected. We are also working on finishing the few remaining rules mandated by Dodd-Frank, such as margin for uncleared swaps and position limits.
Oversight of clearinghouses has been another key priority. Under the new framework, clearinghouses play an even more critical role than before. So we have also been focused on making sure clearinghouses operate safely and have resiliency. We did a major overhaul of our clearinghouse supervisory framework over the last few years. Today we are focused on having strong examination, compliance and risk surveillance programs. And while our goal is to never get to a situation where recovery or resolution of a clearinghouse must be contemplated, we are working with fellow regulators, domestically and internationally, on the planning for such contingencies, in the event there is ever a problem that makes such actions necessary.