SIFMA President, Kenneth E. Bentsen, released a statement regarding the cross-border application of the Dodd-Frank Act in which he sided with CFTC Commissioner O’Malia (and implicitly, the EU regulators and the SEC) in the latter’s disagreement with CFTC Chairman Gensler over whether the CFTC’s current cross-border guidance should be extended past July 12, should be allowed to lapse or a final rule should be adopted.
Lofchie Comment: On June 6, CFTC Chairman Gensler and CFTC Commissioner O’Malia issued statements (linked below) expressing opposing views on how the CFTC should deal with the expiration of its cross-border guidance on July 12, 2013. In his remarks, CFTC Chairman Gensler invoked the images of U.S. soldiers who “stormed the beaches of Normandy” and urged that the CFTC should not further delay the application of its cross-border rules, regardless of the fact that the CFTC was not acting in a manner that was consistent with either the SEC or global regulators, including those in the EU. Commissioner O’Malia took the opposing viewpoint: that swaps regulation is inherently a matter of international concern, as to which the CFTC should attempt to coordinate with our allies. The letter from SIFMA is in support of the position advanced by Commissioner O’Malia.
With the CFTC’s temporary extraterritorial guidance expiring on July 12, the CFTC now faces a decision. Chairman Gensler believes that the CFTC should proceed to adopt final guidance. However, the CFTC never issued a proposed rule on cross-border issues. Consequently, there has never been a full opportunity for other regulators or for market participants to submit comments on the CFTC’s ultimate guidance – in fact, no one really knows what any final guidance issued by the CFTC might look like. Thus, if the CFTC were to issue final guidance that would be effective July 12, no one in the market would have had an opportunity to prepare for its requirements, and the CFTC would then have to issue yet another last-minute exemption from its supposedly final guidance. Rather than issuing final guidance, and then delaying that guidance, it would be more prudent for CFTC Chairman Gensler to accept the suggestion of Commissioner O’Malia and the “invitation” of the European regulators (linked below) for the CFTC to coordinate its regulatory position with regulators around the world.
A third choice is that the CFTC may not agree on anything, and simply allow the current guidance to expire without replacement. As a practical matter, the market would likely interpret such non-action as being an implicit extension of the status quo (albeit with civil litigation risk). That course of inaction would be unfortunate. It would suggest that the CFTC as an agency cannot reach agreement internally, let alone with the SEC or global regulators.
Related News Item: Chairman Gary Gensler’s Address on the Cross-Border Application of Swaps Market Reform;
CFTC Commissioner O’Malia on Ensuring a Backup Plan on Cross-Border Guidance to Give Markets Certainty; European Commissioner’s “Invitation” to CFTC Chairman to Extend the CFTC Exemptive Order on Cross-Border Swaps Regulation