Keynote remarks of Chairman Timothy Massad before the FIA Futures and Options Expo
Good Morning. And thank you, Walt for that introduction. I’m very pleased to be here.
I’d like to thank the Futures Industry Association for inviting me to speak at this 31st Futures and Options Expo. For over 50 years, FIA has been a key voice for the derivatives industry, and I applaud them for putting together yet another impressive event.
There’s a lot going on at the Commission today. And I’d like to discuss a few of the items that are on our agenda for the next few months. But then I’d like to talk about something I haven’t discussed much lately. And that’s the issue of reporting of data on swaps. This is a critical component of the overall reform of the swaps market, and I believe today is a good opportunity to discuss this in some detail, for reasons I’ll explain in a moment.
So, let me first note a few issues where I expect us to act in the next few months.
Margin for Uncleared Swaps. When I spoke here last year, as well as at the FIA Boca gathering, I discussed my commitment to working with the prudential regulators, as well as with our international colleagues in Europe and Japan, to harmonize our rules on margin for uncleared swaps. We have been working very hard to achieve that goal, and I am pleased to say that much progress has been made. As you may know, the prudential regulators recently finalized their versions of the margin rules. On many issues, there is far greater similarity with the current European and Japanese proposals – than compared to a year ago.
I expect that the CFTC will act before the end of the year. And I support making sure that that these rules are similar on issues like the material swaps exposure threshold – which triggers margin requirements; the timetable of implementation; the acceptable types of collateral, including for variation margin; the currency of payment; and other matters. This reflects the work of our respective staffs to achieve greater similarity internationally on core issues. There will still be differences, of course. And even domestically, there may be differences – because there are differences between us and the prudential regulators in mission and regulatory framework. But we remain committed to harmonizing with them, as well as with our international colleagues, as much as possible.
Automated Trading. Recently, I noted that we will soon consider some proposals related to automated trading. These would be designed primarily to address the potential for market disruptions, not market structure issues, and they would be principles-based.
For example, we are considering requiring further pre-trade controls, such as message throttles and maximum order size limits. But we will not prescribe how those limits should be set. We may also propose requirements pertaining to the design, testing and supervision of automated trading systems. We’re considering measures such as “kill switches,” which facilitate emergency intervention in the case of malfunctioning algorithms.
We are considering requirements at the exchange level as well as at the clearing member and trading firm levels. We are considering whether to require proprietary traders who access the market directly and who are using automated trading – to register with the CFTC. This would ensure that all those with so-called “direct electronic access” to our markets are complying with pre-trade risk controls, testing and other requirements.
I anticipate that our automated trading proposals will be largely consistent with the best practices followed by many firms already. The input of the FIA has been helpful in that regard. And as always, we look forward to your feedback on this proposal.
Swaps Trading. In the area of swaps trading, our staff is working hard to make swap execution facility registrations permanent. Twenty-two platforms are temporarily registered. For the platforms that have provided complete information to us, we expect to make determinations of permanent registrations by early 2016.
And let me just note some of the other swaps trading issues are working on. Over the last 18 months, Commission staff has provided flexibility in several areas of our rules through “no-action” letters and guidance. Next year, I expect us to formalize some of these staff actions through rulemaking proposals. We will also consider some additional issues, such as the “made available for trade” determination process.
And now that ESMA has published the MiFiD II technical standards, we are also working to understand differences in our respective rules on swaps trading. This is an important first step as we look at ways to harmonize and achieve mutual recognition.