Gensler Speaks on Swaps Market Reform and Cross-Border Swaps Rules (with Lofchie Comment)

CFTC Chairman Gary Gensler delivered a speech before the Ontario Securities Commission ("OSC") in Toronto, Canada in which he discussed the progress of major market jurisdictions on the coordinated approach to legislation and implementation of reforms. According to Chairman Gensler, as of October 12, swaps market reform focused on three areas: clearing requirement, transparency initiatives and swap dealer registration.

Chairman Gensler noted that, although Canadian dollar interest rate swaps were not included in the clearing of standardized swaps in July, the CFTC will consider (in consultation with regulators in Canada) including them in the future. Second, Chairman Gensler stated that the CFTC has consulted widely with market participants, the SEC and international regulators on how to best finalize rules to promote pre-trade transparency through the use of trading platforms. According to Gensler, the current Canadian authority and the European and Japanese transparency legislative proposals will further align international reform efforts promoting transparency to the public.

Lastly, the CFTC has proposed an approach to phased compliance for foreign swap dealers. Such phased compliance, says Gensler, would allow time for appropriate implementation of substituted compliance, or allowing market participants to comply with Dodd-Frank through comparable and comprehensive foreign regulatory requirements. Gensler notes that the CFTC relies on Canadian authorities with regard to futures regulation, as they are comparable to CFTC requirements. In consultation with the international regulatory community, the CFTC will also move shortly to finalize the cross-border and phased-compliance releases.

Chairman Gensler also raised four questions that market participants and international regulators are focusing on with regard to benchmark interest rates. These questions include: (i) What are the best practices to ensure for a reliable benchmark? (ii) How do the current survey benchmark rates measure up in comparison? (iii) What alternatives might there be for interest rate benchmarks? (iv) How do we ensure a smooth transition from benchmark rates that may have become obsolete, or if markets move to an alternative rate?

Lofchie Comment: Canada has not publicly commented on the CFTC’s proposed cross-border regulations. However, as we had previously reported, a delegation from Canada visited the CFTC along with a number of non-U.S. regulators who had been publicly extremely critical of the CFTC’s proposed rules. The CFTC has more recently taken a number of steps that might be viewed as far more deferential to non-U.S. regulators, including potentially providing them with what the CFTC Chairman has described as #8220;unfettered access#8221; to U.S. swap trade data. Link here.

See: Chairman Gensler's Remarks before Ontario Securities Commission (OSC), OSC Dialogue 2012 in Toronto, Canada.