Commissioner Wetjen delivered a speech at the FIA and FOA International Derivatives Expo discussing the global scope of the CFTC and the implementation of Dodd-Frank overseas. The Commissioner’s speech focused on the final implementation of Dodd-Frank in the coming weeks, especially the legislation’s cross-border policy. In his remarks, he outlined the main objectives which he believes the CFTC must reach through cross-border guidance and relief:
- The CFTC’s Cross-Border Policy Must Protect the U.S. Taxpayer and Financial System: The Commissioner stated that the financial crisis taught global citizens that financial activities which appear to be local can have global consequences. The CFTC’s cross-border policy will account for the varied ways that risk can be imported into the U.S. and the promotion of international harmonization.
- The CFTC Must Protect the U.S. Financial System but Avoid Fragmenting Liquidity and Creating Unfair Competitive Advantages for Some Firms and Markets: The Commissioner confirmed that the CFTC’s cross-border guidance and Dodd-Frank provisions will comply in appropriate cases with “comparable and comprehensive” foreign regimes. Furthermore, the Commissioner clarified the CFTC’s approach as it relates to transaction-level requirements including clearing, reporting, and execution.
- The CFTC Must Adopt a Cross-Border Policy That Is Clear and Workable, Which Requires an Orderly Transition Period: The Commissioner stated that the CFTC and other financial regulators must be willing to revisit any cross-border framework and remain open to a “course of correction,” as developments in global and domestic derivative markets dictate.
- The Commissioner closed by stating he believed that the CFTC should adopt “interim final guidance in the coming weeks and seek additional comment on an interim approach that provides the legal certainty needed for the markets in the short term. . . .”
Lofchie Comment: The Commissioner delivered what seemed to be a thoughtful and reasoned speech as to the difficulties in adopting a workable scheme of cross-border regulation. However, he then closed his remarks with recommendations that seemed inconsistent with the tenor of most of his speech. It is now June 25th; the current guidance on cross-border issues expires on July 12th. No one in the market (buy-side or sell-side), nor any non-U.S. regulator, has any clear notion of what a final CFTC rule on the cross-border application of Title VII will look like. Yet the Commissioner believes that the CFTC can adopt a workable cross-border “rule” (which cannot be called a rule because it has not been through any of the legal formalities of rulemaking) before July 12th, and do so without the benefit of either public comment, or coordination with the SEC or non-U.S. regulators.
Such a course of action would be imprudent. When the CFTC’s choices are either (i) rush to beat an artificially imposed three-week deadline that can be readily extended or (ii) extend the current guidance and use the delay to publish a carefully considered rule proposal that could be modified in light of comments from U.S. market participants and non-U.S. regulators, as well as coordination with the SEC, the second choice seems obvious. That so much time has passed since the adoption of Dodd-Frank does not justify haste now. That the CFTC has not yet published a carefully considered rule proposal on cross-border issues reflects the choices that the CFTC has made to date, not a result that was forced upon the CFTC.