Chairpersons Gensler and White Testify on "Mitigating Systemic Risk in the Financial Markets through Wall Street Reforms"
Commentary by Bob Zwirb
The Senate Banking Committee held a hearing to discuss reducing systemic risk through Wall Street reforms, including the implementation of Dodd-Frank.
Link here to see a summary of the hearing produced by Delta Strategy Group. Among the topics addressed in the questioning were the following:
Cross-Border Regulation
Rule Making Progress (and Volcker)
Cooperation between the Regulators
Money Market Funds
The Jobs Act
Physical Commodity Holdings by Banks (see also the related item in today's newsletter regarding Senator Stabenow letter to Chairman Gensler)
Fiduciary Duties for Securities Brokers
Corporate Voting Structures Where Some Shares Have Greater Voting Rights Than Others
The following witnesses testified:
- CFTC Chairman Gary Gensler (prepared statement);
- SEC Chairman Mary Jo White (prepared statement).
See: click here to see a summary of the hearing from Delta Strategy Group.
See also: Hearing webcast.
Commentary
The testimony reflects the ongoing difference in style and pace between the CFTC and the SEC. This contrast has been more evident in the cross-border area, with the CFTC having issued final "guidance" arguably not fully in accordance with APA procedures, while the SEC is engaged in proposing an APA-compliant rulemaking procedure to address this issue. In this regard, Senator Crapo commented as to the "insufficient level of harmonization, both domestically and abroad."
Reviewing the long list of regulatory controls items that Chairman Gensler hopes to implement, one is struck by the sweeping federalization of functions that previously were within the realm of the exchanges - e.g., margin setting, position limits - and the ambitious effort to use Dodd-Frank rulemaking to go after trading practices that had nothing to do with the financial crisis, such as high-frequency trading.
The CFTC already has a comprehensive regulatory regime for dealing with direct market access; Part 30 of its rules more than adequately deals with substituted compliance for cross-border investors in a simple fashion that has worked well for decades without the complexity of the nearly 300 pages of the CFTC's new approach, and the CFTC's commodity pool regulations already address in an adequate fashion what constitutes a "U.S. person." Yet all of this will be upended with new rules, guidance, concept releases, etc., piling new definitions and new requirements upon the old. As a result of these changes, there are now inconsistent definitions of "U.S. person" for swap dealers and CPOs, with different notions of "comparable regulation" for swaps and foreign futures, and different standards for block trading depending upon whether they involve futures or swaps. It was challenging when the SEC and the CFTC had different defined terms; now the CFTC has different defined times for each type of product.