CFTC Chair Timothy Massad detailed the agency’s past efforts and his remaining agenda on behalf of commercial end-users. In an address at the American Gas Association 9th Annual Energy Market Regulation Conference, Chair Massad outlined actions the CFTC undertook in support of commercial end-users:
- the exemption of commercial end-users from the CFTC’s rule on margin for uncleared swaps;
- clarifying when commonly used agreements that include volumetric optionality provisions are forward contracts, and not subject to swaps rules;
- eliminating certain reporting and recordkeeping obligations and announcing that trade options would not be subject to position limits;
- customer protection improvements regarding collection of margin;
- simplifying recordkeeping requirements;
- granting delayed reporting for contracts in illiquid markets;
- amending CFTC swap dealer rules so that “local, publicly-owned utility companies can continue to effectively hedge their risks in the energy swaps market”;
- the exemption of certain transactions in the regional transmission organization and independent system operator markets from most provisions of CFTC rules other than the authority to pursue fraud and manipulations in these markets;
- clarifying that community development financial institutions and small banks may choose not to clear a swap subject to the CFTC’s clearing requirement; and
- ensuring that end-users can use the Congressional exemptions given to them regarding clearing and swap trading even if they enter into swaps through a treasury affiliate.
He then described several pending actions (position limits, capital requirements for swaps dealers and major swap participants, the de minimis threshold, and the modernization of recordkeeping requirements), as well as new challenges (cybersecurity, automated trading and the changing nature of liquidity and clearinghouse resilience).
On the issue of recently reproposed rules for limiting speculative futures and swaps positions, Chair Massad stated that the CFTC has a responsibility to “implement a balanced rule that achieves the objectives Congress has established,” and that he hopes the reproposal can be finalized in the near future.
Chair Massad asserted that end-users were “not the cause of the crisis.” He stated that there is a need to make sure that implementing reforms do not create undue burdens on these businesses. In a look back on his legacy at the CFTC, Chair Massad stated:
“We worked to keep the focus of regulation on those who create the most risk, and made rules less prescriptive in some areas. And we have worked to strengthen relationships with international regulators and harmonize regulations across borders.”
Lofchie Comment: In his remarks, Chair Massad stated:
“When I and my fellow Commissioners, Sharon Bowen and Chris Giancarlo, joined the CFTC together in June of 2014, it already had written most of the rules required by the Dodd-Frank Act. However, there were many criticisms and concerns. We inherited the task of finishing and improving this framework.” [Emphasis supplied.]
In many ways, Chair Massad’s freedom to re-examine and re-think the regulations adopted under former Chair Gensler was limited. That is, Chair Massad was limited to working at the edges, always declaring that any amendments made under his stewardship were merely “fine-tuning,” finishing a “framework” that he had inherited. See, e.g., Chair Massad Updates CFTC Priorities (need to fine-tune swap regulations); CFTC Chair Massad Discusses CFTC Rulemaking in an International Context (with Lofchie Comment) (fine tuning of cross-border regulations); Chair Massad Discusses CFTC’s Market Risk Strategy and Priorities for “Fine-Tuning” Flawed Rules (with Zwirb Comment). It is quite clear, however, that the CFTC’s rules were (and are) in need of an entirely fresh eye. This requires more of a Zen mindset than the one he brought to the task. See, e.g., Zen Mind, Beginner’s Mind by Shunryu Suzuki. The next CFTC administration should be better positioned in this regard.