CFTC Commissioner Bart Chilton issued a statement regarding the upcoming October 2 effective date for reporting rules for swap execution facilities (SEFs). Commissioner Chilton stated his support for the new reporting rules, saying that they will shine a much needed light into the “dark markets” that contributed to the financial crisis in 2008. However, Commissioner Chilton said the CFTC should provide a targeted, time-limited relief for companies to comply with the new reporting requirements of CFTC Rule 43 (“Real-Time Public Reporting”) and Rule 45 (“Swap Data Recordkeeping and Reporting Requirements”). Commissioner Chilton also addressed the issue raised by footnote 88 in the CFTC SEF rule, which pulls permitted transactions into SEF procedures. He stated that the CFTC should permit an extension of two months, and it should not be limited to any certain class or type of swap category for this limited time period, in order for all impacted parties to comply with the new rules.
Lofchie Comment: From the standpoint of internal co-ordination at the CFTC, it seems odd that one of the CFTC Commissioners who is a great advocate for the new regulatory scheme would issue a statement on one day that a two-month delay in the SEF rules might be necessary to avoid “causing serious market disruptions and possible serious liquidity crises” and, later on that same day, the CFTC staff issues a one-month delay. Is there internal disagreement as to either the magnitude of the risk or as to the time needed to address the risk? Is there an internal communications issue? Does this mean that the one-month delay is likely to be extended?
One might dismiss these questions as simply administrative issues within the agency, but they are indicative of problems with the regulatory scheme. If, several days before the launch of a new rule set, one of the Commissioners concedes that the rules may cause serious market disruptions, that is worrisome. Beyond that, the adoption of flawed rules, combined with mixed messaging as to what rules go into effect and when they go into effect, is simply not consistent with the way that a regulatory scheme should function.