CFTC Commissioner Wants Global Standards, Less Rigidity

Commissioner J. Christopher Giancarlo expressed concerns that global regulators may not be able to reach an accord on the regulation of swaps execution and clearing. He delivered his remarks in a keynote address before the Annual Forex Network in Chicago.

Commissioner Giancarlo argued that the made-available-to-trade ("MAT") process, in combination with the CFTC's limited execution method approach, is problematic, and cautioned that it forces swaps to trade through a limited number of execution methods even where a product lacks the liquidity needed to support such trading.

Further, Commissioner Giancarlo discussed tension between clearing and trading mandates and argued that this tension could be avoided if flexible execution methods were permitted for all swap execution facility ("SEF") trades. He stated that customer choice and technological innovation, not regulators, must determine the various means of execution utilized in the swaps market. Commissioner Giancarlo referenced the CFTC's Division of Market Oversight roundtable, where participants argued for the establishment of a process that would require consideration of "objective, quantitative criteria, public comment and Commission approval before a swap is subject to mandatory SEF trading." He asserted that it is imperative for the current CFTC to correct the inflexibility of the CFTC's existing swap trading rules. He warned that it is crucial that key regulators across the globe coordinate the timing and consistency of the mandates, and that "anything else will perpetuate global swaps market fragmentation."

Finally, Commissioner Giancarlo spoke about recent developments in the retail over-the-counter ("OTC") FX markets. In August, the CFTC approved rule and interpretive notice amendments filed by the National Futures Association ("NFA") in the wake of the historical volatility that occurred in FX markets when the Swiss National Bank lifted its cap on the Swiss franc's exchange rate against the Euro. Commissioner Giancarlo expressed disagreement, however, with the view that the retail OTC FX markets require wholesale changes in the way they are currently regulated.

Commissioner Giancarlo cautioned that liquid and broad global markets in currency, FX and other derivatives must be maintained. "To do so, we must reach an accord on how to regulate swaps execution and clearing in an intelligent, harmonious and market oriented manner within and across jurisdictions."