CFTC Commissioner Wetjen Discusses Trading Mandate, Cross-Border Issues
At the Cumberland Lodge Financial Services Policy Summit, CFTC Commissioner Mark Wetjen spoke about various issues relating to trade execution, principally in the cross-border context.
Commissioner Wetjen stated that of all the recent changes in the derivatives markets, the trading mandate presents some of the "most novel" issues for global regulators. In particular, he noted that, in the current regulatory landscape, many trading decisions were made based on how to comply with or avoid rules instead of on the basis of the liquidity profile of a given marketplace. He said that he believes it to be "good public policy" to seek to minimize fragmentation, and highlighted a number of measures that he believes the CFTC should take to do so.
As a way to reduce market fragmentation, Commissioner Wetjen advocated for the CFTC to continue to embrace substituted compliance. Additionally, Commissioner Wetjen outlined six steps that he felt the CFTC should take as soon as practicable to address trading issues (though he noted that these should be undertaken after the resolution of clearinghouse equivalency issues), including the following:
- amend the no-action letter on qualifying multilateral trading facilities ("Q-MTFs") to impose its conditions only on swaps involving at least one U.S. person, and not on all trading done through the platform;
- accelerate the CFTC's consideration of a foreign SEF rulemaking along the lines approved for foreign futures exchanges, and expedite approval of the 25 outstanding applications from foreign boards of trade ("FBOTs");
- propose a clarifying interpretation concerning the so-called "de-guaranteeing" of trades;
- bring an end to the "name give up" occurring in the context of anonymous trading protocols on SEFs;
- seek public comment on the registration of multilateral swap-trading venues facilitating the execution of swaps that are not subject to the trading mandate; and
- revisit the existing made-available-to-trade ("MATT") process that is done via rule filing currently.
See: Commissioner Wetjen's Speech; ISDA; Revisiting Cross-Border Fragmentation of Global OTC Derivatives: Mid-year 2014 Update.Related news: CFTC Commissioners Discuss and Differ on CFTC's Swaps Trading Rules (with Lofchie Comment) (November 12, 2014); CFTC Issues Conditional No-Action Relief with Respect to Swaps Trading on Multilateral Trading Facilities on European Exchanges (CFTC Letter 14-46) (April 9, 2014).
Commentary
Commissioner Wetjen's speech provides several reasonable measures for the CFTC to undertake as he advocates for substituted compliance. An alternative view was presented by CFTC Chair Timothy Massad who expressed his openness to the idea that the CFTC "fine tune" its trading rules to create a framework to allow markets to thrive. Chair Massad stated his belief that any market fragmentation which may have arisen is "largely" a result of the United States imposing rules before other jurisdictions. (See Chair Massad speech, covered here).