CFTC Chair Massad Discusses CFTC Cross-Border Priorities (with Lofchie Comment)

CFTC Chair Massad delivered the keynote address before the Institute of International Bankers. The address focused on the CFTC's priorities, including cross-border harmonization, clearing and benchmarks.

Regarding cross-border regulation, Chair Massad explained that the margin rule is a good example of the importance of cross-border harmonization. He reiterated his willingness to consider making changes to the CFTC's proposed rule, such as increasing the threshold for margin requirement. Chair Massed said that he also is speaking currently with regulators about the effect of the supplemental leverage ratio ("SLR"), which could have "a significant negative effect on clearing."

Chair Massad went on to stress that cross-border cooperation with clearinghouses is critical, since a small number of clearinghouses are responsible for a large portion of clearing of the global market. He noted that the CFTC has had a "productive dialogue" with European regulators to facilitate the recognition of U.S. clearinghouses as equivalent, and is optimistic that an agreement will be reached soon.

With regard to benchmarks, Chair Massad stated that the CFTC has focused its efforts on enforcement actions. He encouraged the development of standards for benchmarks that are designed to ensure good administration and transparency and reduce manipulation. However, he added, direct government involvement in benchmarks, like that which was proposed by the European Union, would have "adverse market consequences." By contrast, Chair Massad praised IOSCO's approach in its Principles for Oil Price Reporting Agencies and Principles for Financial Benchmarks, both of which create a framework for price reporting agencies and financial benchmark administrators to address methodologies, governance, conflicts of interest and disclosure.

Lofchie Comment: Chair Massad should be complimented for walking the CFTC back from engaging in brinksmanship with global regulators. Chair Massad is trying to create a workable structure for the application of cross-border margin regulation and for the regulation of clearinghouses doing business across borders. A more appropriate course would be to abandon the CFTC's cross-border "guidance" altogether and adopt cross-border "rules" in accordance with the requirements of the Administrative Procedures Act. While the cross-border guidance is now demonstrably problematic in light of the concerns cited in Chair Massad's speech, the more significant complaint is that it is a potential abuse of power. Regulatory agencies ought not to ignore the rules that apply to them.

See: Chair Massad's Remarks.Related news: CFTC Chair Massad Discusses CFTC Priorities (with Lofchie Comment) (February 26, 2015); CPMI and IOSCO Publish Reports on the Implementation of the Principals for Market Infrastructures in the EU, Japan and the U.S. (February 26, 2015); IOSCO's Final Report on Principles for Financial Benchmarks (with Lofchie Comment) (July 17, 2013).