Bart Chilton, the media-savvy CFTC commissioner, declared Tuesday that he is giving up his post by the end of the year. This creates three commissioner vacancies as Jill Sommers exited in July and Gary Gensler, CFTC chairman, will step down by year’s end; the remaining commissioners will be Mark Wetjen and Scott O’Malia. The replacements to come will usher in a new era for the regulator.Before they go, however, Chilton and Gensler are pointing to their legacies.
In a sense, Chilton is saying that his work is done as a new version of the proposal for the position limits rule for derivatives, intended to restrain commodity market speculation, heads toward completion.
“We are considering what I believe to be the signal rule of my tenure here at the commission,” Chilton says in his statement. “I’ve been working on speculative position limits since 2008.” The proposed rulemaking would set limits on speculative positions in 28 physical commodity futures contracts traded according to the rules of a designated contract market and the swaps that are economically equivalent to these contracts, as mandated via Dodd-Frank.
Bart Chilton delivering the keynote address at the FTF DerivOps conference last year.
A previous version of the controversial position limits rule was rejected last year by a federal judge. However, Chilton is optimistic about the current version. “The commission staff has ultimately done an admirable job of devising a proposed regulation that should be unassailable in court, good for markets and good for consumers,” he says.
If ultimately approved, the position limits rule will cap an almost unending flow of rules and guidances as Gensler recently cited during the 2013 Annual Glauber Lecture at Harvard University on Oct. 29.
For swaps execution reforms alone, Gensler says that the CFTC’s 62 final rules, orders and guidances “have brought traffic lights, stop signs, and speed limits to the once dark and unregulated swaps roads.” Since swap execution facilities (SEFs) launched last month, approximately 80 percent of new interest rate swaps are being cleared under the new rules and regulations. In fact, he says that $190 trillion of the approximately $340 trillion market-facing interest rate swaps market, or 57 percent, has been cleared, compared to 21 percent of the market in 2008.
“Today, the public can see the price and volume of each swap transaction as it occurs on a website, like a modern-day tickertape,” Gensler says. “Regulators have benefited as well. Nearly $400 trillion in market facing swaps are being reported into data repositories.” In addition, central clearing for “interest rate and credit index swaps is a reality for swap dealers, hedge funds and other financial institutions,” he adds. Gensler also cited advances in swap dealer oversight, international coordination on swap market reform.
Yet Gensler acknowledges that the regulator is understaffed for the over-the-counter revolution.
“At 675 people, we are only slightly larger than we were 20 years ago,” Gensler says. Congress has
Bart was an approachable and candid Commissioner and even gave out his emailand phone number to attendees shouldthey ever have questions.
mandated that the CFTC oversee the $400 trillion swaps market, more than 10 times the size of the market four years ago, he adds. The futures market has grown fivefold since the 1990’s.
“We need people to examine the clearinghouses, trading platforms and dealers. We need surveillance staff to actually swim in the new data pouring into the data repositories. We need lawyers and analysts to answer the many hundreds of questions that are coming in from market participants about implementation,” Gensler says. People are also needed for monitoring the protection of customer funds and for enforcement to make certain “this vast market actually comes into compliance,” he adds.
“The President has asked for $315 million for the CFTC. This year we’ve been operating with only $195 million,” Gensler. “Worse yet, as a result of continued funding challenges, sequestration and a required minimum level Congress set for the CFTC’s outside technology spending, the CFTC already has shrunk 5 percent, and just last week, was forced to notify employees that they would be put on administrative furlough for up to 14 days this year.”
So, the new era for the CFTC will move away from making rules and toward making certain that all the effort that went into their creation is not wasted. Given the staffing issues, the rules-making chapter may seem like a cakewalk in comparison.
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