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Acting CFTC chairman touts success of substituted compliance, pledges more

First Published 11th March 2014

Mark Wetjen, the acting chairman of the CFTC, said the regulator was committed to a harmonised approach to market regulation.

Boca Raton, Florida - Mark Wetjen, acting chairman of the Commodity Futures Trading Commission (CFTC), said the US regulator was committed to establishing a harmonised approach to international regulation.

"Moving ahead, the CFTC will continue to lead in promoting harmonised regulation, doing what it can to avoid incentivising personnel decisions, inter-affiliate relationships, and corporate structures that will make financial firms only more difficult to manage, understand, and unwind during a period of market distress," Wetjen said.

In a speech at the Futures Industry Association conference here, Wetjen said the main objectives of derivatives regulation must be to support a global market structure that promotes open, transparent, and liquid markets, as well as sound risk-management practices.

"With these objectives in mind, I would like to emphasise briefly the importance of the Commission's continued efforts to promote a harmonised, international regulatory framework," he said.

"From a policy perspective, the substituted-compliance framework for swaps incentivises foreign jurisdictions to harmonise their risk management, reporting, clearing, and execution standards with US standards under Dodd-Frank. In doing so, it also better aligns the interests of firms operating in these jurisdictions with the regulatory interests of foreign regulators."

Wetjen said one theme from a CFTC meeting with representatives from 12 countries and 21 regulators was that there was "a continued commitment to derivatives reform across the globe".

At the same time, Wetjen said harmonising regulations that did not lead to outcomes similar to those under Dodd-Frank could result in regulatory arbitrage

"It would be misguided for global regulators to harmonise the lowest common denominator in regulatory standards or to harmonise solely for harmonisation's sake," he said. "Fortunately, the substituted-compliance framework effectively ensures that this will not be the case for those markets accessed by US persons, and for those markets that otherwise have a direct and significant nexus to US commerce or the US financial system."

He emphasised the need for an "outcomes-based approach" in cross-border guidance. "But the details will often matter, too. Regulators across the globe cannot know before implementation whether regulations will achieve anticipated outcomes, and so, even in an outcomes-based framework, they often must agree in some amount of detail on the specific means for achieving those ends," Wetjen said.

He expressed confidence the US and EU would continue to make progress towards a longer-term, mutual recognition framework in the coming weeks.

Wetjen said the CFTC may consider a rulemaking next month that will set standards for some types of clearing arrangements through foreign clearinghouses.