CFTC Chairman Gary Gensler testified before the U.S. House Committee on Agriculture on the status of Dodd-Frank Title VII implementation. Chairman Gensler described the CFTC’s continuing efforts in the swaps rule-making area as follows:
- Transparency: The CFTC is working to finish the pre-trade transparency rules for swap execution facilities (“SEFs”), as well as the block rule for swaps;
- Clearing: Chairman Gensler expects that the CFTC will soon complete a rule to exempt swaps between certain affiliated entities within a corporate group from the clearing requirements, and will be considering possible clearing determinations for other commodity swaps, including energy swaps;
- Swap Dealer Oversight: The CFTC is working on a global approach to margin requirements for uncleared swaps. Chairman Gensler anticipates that the CFTC, in consultation with European regulators, will adopt final margin rules, as well as related rules on capital, in the second half of 2013. The CFTC is also working with other domestic financial regulators to complete the Volcker Rule;
- International Coordination on Swaps Market Reform: The CFTC has proposed a guidance interpreting Dodd-Frank Section 722(d) (“Jurisdiction – Applicability”), including “substituted compliance.” The CFTC has also granted a time-limited relief for non-U.S. swap dealers which will expire in July, at which time various Dodd-Frank Act requirements will begin to apply to non-U.S. swap dealers;
- Customer Protection: The CFTC has proposed rules that would strengthen the controls around customer funds at FCMs. The CFTC also intends to finalize a rule this year on segregation for uncleared swaps;
- Benchmark Interest Rates: Chairman Gensler stated that continuing to refer to LIBOR, Euribor and similar rates diminishes market integrity and is unsustainable in the long run. The CFTC and the FSA are co-chairing the IOSCO Task Force on Financial Market Benchmarks to discuss the transition.
Lofchie Comment: Non-U.S. firms should note Chairman Gensler’s remarks that the CFTC’s guidance on jurisdiction will expire in July and that various Dodd-Frank requirements will begin to apply to many non-U.S. firms. Since many of the rule requirements are still unclear to market participants, notwithstanding the rules’ adoptions, and since no one knows what the CFTC’s view is of its post-July jurisdiction, firms should prepare as best they can for surprises. Previous surprises have included substantial expansions in the CFTC’s assertion of the scope of its jurisdiction, on the one hand, and virtual campaigns of last-minute no-action letters on the other. Hopefully, the CFTC will promptly issue a statement as to its view of its post-July jurisdiction.
Click here to view written testimony in full (links externally to House Committee on Agriculture website).
See also: Information Regarding the Hearing: “Examining Legislative Improvements to Title VII of the Dodd-Frank Act.”