Commissioner Scott O'Malia Delivers Keynote Address at SIFMA (with Lofchie Comment)

In a speech at the 2013 SIFMA Compliance and Legal Society Annual Seminar, CFTC Commissioner O'Malia discussed transparency in the OTC derivatives market in terms of price and data reporting requirements, as well as developments in the areas summarized below.

• The CFTC's enforcement program.Commissioner O'Malia stated the Dodd-Frank Act has given the CFTC new enforcement powers and has lowered the standard required of the CFTC to demonstrate a violation. Consequently, the CFTC is going to bring more enforcement actions. However, Commissioner O'Malia also indicated that the CFTC must clarify what types of trading activities it deems inappropriate.

• Efficient Management of SDR reporting information.Commissioner O'Malia indicated that he would push to upgrade procedures relating to the collecting, storing and distributing of SDR reporting information to guarantee confidentiality. He also reported that there was a lack of uniformity in the information currently being submitted, which significantly limited the ability of the CFTC to use the information.

• The futurization of swap trades.Commissioner O'Malia stated he believes that one reason so many existing swap transactions are being converted to futures is the regulatory disparity between futures and swaps regulation, a disparity that gives futures the advantage. Among other factors, he singled out the higher margin requirements on swaps. He hoped that the publication of Swap Execution Facilities ("SEF") rules would give market participants more clarity and certainty in swap transactions and the possibility to do trades on centralized venues.

• Cooperation between the SEC and the CFTC.Commissioner O'Malia said that an agreement on cross-border rules, and especially on the definition of "U.S. person" was crucial to the industry.

• Cross-Margining.He said that the SEC and the CFTC should have the same methodologies for calculating margin requirements, and that the SEC's requirements on CDS were too high.

Lofchie Comment: One regulatory problem pointed out by CFTC Commissioner O'Malia is that the regulators often mandate the transmission of information to themselves, even though they have no real ability to use the information. In the case of SDR reporting, O'Malia said the problem is that information is transmitted using varying technologies because the regulators failed to specify a common formation. In other cases, particularly Form PF, the information is not useful because the questions are not clear and, thus, participants are bound to answer them in different ways.

Click hereto view speech in full (links externally to CFTC website).See also: SIFMA Acting President CEO Kenneth E. Bentsen, Jr. Remarks as Prepared for SIFMA's Compliance Legal Society Annual Seminar.