CFTC Chairman Gensler says 'bright lights' to shine on swaps market, outlines timetable
First Published 10th October 2012
The chairman of the CFTC hailed what he called the "bright lights" that would begin to shine on the swaps market and outlined a timetable for the next several months.
Washington - Gary Gensler, the chairman of the Commodity Futures Trading Commission, sounded a triumphant note on the reforms to the swap market that were finally taking shape and gave a timetable for what's coming up.
"The reform structure Congress and the President have built is becoming a reality this week. The new era is beginning," Gensler said in an address before a conference. "Bright lights will begin to shine on the swaps market."
Gensler said that by the new year, the United States would have achieved real-time public reporting and reporting to swap data repositories (SDRs) of interest rate and credit default swap (CDS) indices. Reporting for energy and other physical commodity swaps begins shortly thereafter.
This week, he said, swap dealers begin the process of registering and, for the first time, will come under comprehensive regulation to lower their risk to other market participants and the economy.
"The Commission has made significant progress on bringing swaps into central clearing, which will lower the risk of the highly interconnected financial system," Gensler said, adding that central clearing in the futures market had lowered risk to the broader public for more than a century.
He said Dodd-Frank reform brought this model to the swaps market. Based on completed rules, clearinghouses are adopting risk management reforms that will be implemented by November 8, he said.
Looking ahead, Gensler said the initial set of clearing determinations may be finalised as early as next month. "This would lead to required clearing by swap dealers and the largest hedge funds as early as February. Compliance would be phased in for other market participants through the summer of 2013," he said.
"Second, the CFTC is looking to finalise later this fall a set of rules promoting further transparency for the swaps marketplace. This includes rules on minimum block sizes, as well as for trading platforms called swap execution facilities."
Third, the CFTC is working on final guidance on the cross-border application of Dodd-Frank swaps market reform, the chairman said.
Gensler has called for strong cross-border application of Dodd-Frank, but a number of regulators in Europe -- and even one of the CFTC's own commissioners, Scott O'Malia -- have been concerned about imposing Dodd-Frank rules directly into foreign jurisdictions and have instead called for a process known as substituted compliance.
Gensler, in his speech, did not specify what the guidance was likely to look like.
"This guidance is critical because swaps executed offshore by U.S. financial institutions can send risk straight back to our shores. This happened with the London and Cayman Islands affiliates of AIG, Lehman Brothers, Citigroup, Bear Stearns and Long-Term Capital Management. Earlier this year, it happened again when JPMorgan Chase executed swaps through its London branch," he said.