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Acting CFTC chairman eyes remaining Dodd-Frank hurdles and other top issues

First Published 6th February 2014

Mark Wetjen detailed the remaining issues for the CFTC as it finishes up with Dodd-Frank and considers other big-ticket items.

Washington DC - Mark Wetjen, acting chairman of the Commodity Futures Trading Commission (CFTC) told a US Senate panel that the last remaining major hallmark of Dodd-Frank implementation was days away, with a number of remaining rules due to be tackled in the months ahead.

Beyond Dodd-Frank, the Commissioner also said there were other important matters to address in the months ahead, including risk controls and safeguards for automated trading, made available to trade determinations, data-related matters, position limits and international coordination.

"For the CFTC, only a few rulemakings remain to be re-proposed or finalised in order to complete the implementation of Dodd-Frank. Indeed, in just a matter of days, the compliance date for perhaps the last remaining, major hallmark of the reform effort will arrive: the effective date of the swap-trading mandate," Wetjen said.

"Rules the Commission is working to address in the coming months include capital and margin requirements for un-cleared swaps, rulemakings intended to harmonize global regulations for clearinghouses and trading venues, and finalising position limits."

On the subject of made available to trade determinations, Wetjen said there had been some questions in this context about the trading of so-called 'package transactions', which often include a combination of financial instruments and at least one swap that is subject to the trade execution requirement.

He said he directed Division of Market Oversight staff to hold an open-to-the-public roundtable, which will take place February 12, and to examine these issues.

Regarding data, Wetjen said a working group will formulate and recommend questions for public comment regarding compliance with Part 45 reporting rules and related provisions, as well as consistency in regulatory reporting among market participants.

Wetjen said the CFTC had extended the comment period for its Concept Release on Risk Controls and System Safeguards for Automated Trading Environments. It will now continue through Feb 14.

"The CFTC's Concept Release on Risk Controls and System Safeguards for Automated Trading Environments provides an overview of the automated trading environment, including its principal actors, potential risks, and responsive measures taken to date by the Commission or industry participants. It also discusses pre-trade risk controls; post-trade reports; system safeguards related to the design, testing and supervision of automated trading systems; and additional protections designed to promote safe and orderly markets," Wetjen said.

He also noted that a comment period on a re-proposed rule for position limits closes on Feb 10.

Finally, on international coordination, Wetjen said that in light of the CFTC's swaps authority, and the complexities of implementing a global regulatory regime, the Commission was working with numerous foreign authorities to negotiate and sign supervisory arrangements that address regulator-to-regulator cooperation and information sharing in a supervisory context.

"We currently are negotiating such arrangements with respect to swap dealers and MSPs, SDRs, SEFs, and derivatives clearing organisations."

He also said it was clear to him that the CFTC took the correct approach in adopting cross-border policies that account for the varied ways that risk can be imported into the US. "At the same time, the CFTC's policies tried to respect the limits of US law and the resource constraints of US and global regulators by relying on the process known as 'substituted compliance'.

"It appears at this time that the substituted compliance approach has been successful in supporting financial reform efforts around the globe and a race-to-the-top in global derivatives regulation," he said, noting an EU agreement on the Markets in Financial Instruments Directive II (MiFiD II).

"Other jurisdictions that host a substantial market for swap activity are still working on their reforms, and certainly will be informed by the EU's work and the CFTC's ongoing coordination with foreign regulators," he said.

He added: "Harmonising regulations governing clearinghouses and trading venues, in particular, is critical to sound and efficient market structure."

As a final note on cross-border issues, Wetjen said that on February 12 the Global Markets Advisory Committee will meet to discuss the Nov 14, 2013 CFTC staff advisory on applicability of transaction-level requirements in certain cross-border situations.