CFTC Chairman Gary Gensler delivered a speech before the International Group of Treasury Associations and the U.S. Chamber of Commerce, addressing the CFTC’s progress since swaps market reforms began in 2010 as well as discussing future plans.
Chairman Gensler seemed generally pleased with the CFTC’s progress. He began by recalling the state of the U.S. economy in 2008 and comparing it to what he views as a much more transparent and efficient swaps market today. He credited the CFTC with making the markets more transparent through initiatives such as requiring swap execution facilities to be registered, which he believes caused “a transition from a mostly dealer-dominated market to one where others have a greater chance to compete for your business.”
Gensler also spoke about other areas where CFTC has reformed the markets; for example, bringing transactions among financial institutions into central clearing, as well as bringing oversight to swap dealers. According to Gensler, there are now 82 swap dealers and two major swap participants registered, including the G16 dealers and a number of energy swap dealers. Gensler also noted the CFTC’s increased coordination with global regulators, highlighting reforms such as the CFTC’s completed guidance on the cross-border application of Dodd-Frank, and other swaps market reforms that cover transactions between non-U.S. swap dealers and guaranteed affiliates of U.S. persons. Gensler ended his speech by stating his view that the CFTC is an underfunded and understaffed agency, and should be allocated proper funding in order to continue monitoring the swaps market.
Lofchie Comment: CFTC Chairman Gensler said that one of the positives of the CFTC’s new swap rules is that persons other than dealers now have a chance to compete for swap business. However, there are at least three factors that would argue against this hope. First, the way that the swaps registration rules work, effectively only swap dealers can do business with ERISA plans and other special entities, which would seem to significantly limit trade partners for those firms. Second, many non-U.S. dealers that do not want to register with the CFTC are limiting the size of their U.S. business to avoid registration, which would also seem to reduce the number of trading partners for U.S. firms. Third, some U.S. firms are limiting the scope of their swaps trading activities so that they are not classified as swap dealers. That said, if there has been in fact an increase in the number of available trading partners available for commercial entities, that would be a good thing. Hopefully, the CFTC will release the relevant trading data.