In the keynote address before the Monetary Authority of Singapore, CFTC Chair Massad continued to advocate for cross-border harmonization.
Chair Massad reiterated his belief that the G-20’s agreements to reform the swaps market can only go so far, explaining that it is incumbent upon regulators to develop rules that implement the G-20’s commitments. He also stated that the best way to continue to grow domestic and international financial markets is to create a sound regulatory framework, which must “bring transparency, integrity, and oversight, but, at the same time, provide predictability to market participants, and encourage innovation and competition.”
Chair Massad explained that clearing is “perhaps the most important reform in terms of reducing systemic risk,” but noted that central clearing does and will not eliminate risk. While the CFTC is working with European regulators to harmonize rules, he commented, the CFTC does not take the view that every clearinghouse must register with it.
He identified margin standards and stress testing as two areas that are “critical pieces of this discussion” of harmonizing clearinghouse supervision. Chair Massad further stated that setting margin requirements for uncleared swaps is an opportunity for global regulators to make the rules in the U.S., Asia and Europe “substantially similar” from the outset.
Chair Massad called on regulators in Asia to become even more involved in the process of establishing swap data and trade repositories. Additionally, he mentioned the recent CFTC approvals of Bursa Malaysia and SGX as foreign boards of trade, stating that the approvals show “the increasing interconnectedness of the global derivatives markets and the importance of Asia in that development.” With this increasing interconnectedness, Chair Massad reiterated that the CFTC is committed to a coordinated regulatory approach.
Lofchie Comment: The CFTC is substantially improved under the leadership of CFTC Chairman Massad. His efforts to reach out to international regulators to urge the development of a common approach is a significant step-up from the CFTC previously asserting that it would go it alone.
That said, there is still an inherent weakness to Chairman Massad’s approach. The major problems that he inherited were not just ones resulting from the CFTC’s interaction with other regulators. The more fundamental problems are with the CFTC’s rules themselves: they were rushed through, with little consideration of their economic effect, based upon a statute (Dodd-Frank) that was likewise rushed through. The Chairman should not try to convince the Asian regulators to adopt a similar set of flawed rules. The Asian regulators are not under reciprocal political pressure to copycat our rules. Chairman Massad might want to consider using the reluctance of the Asian regulators to follow the U.S. “model” as a reason to rethink our own rules.
See: Chair Massad’s Remarks.
Related news: In Japan, CFTC Chair Massad Discusses Cross-Border Harmonization (January 22, 2015); CFTC Chair Massad Discusses Cross-Border Harmonization (January 21, 2015); Chair Massad Announces Trip to Asia to Discuss Swaps Market Reform (January 14, 2015).