Streetwise Professor Craig Pirrong on the SEF Rulemaking (with Lofchie Comment)

In his October 23 blog post, economist Craig Pirrong discusses the lack of clarity in CFTC rulemaking relating to SEFs (and other issues), in particular criticizing the CFTC's practice of adopting requirements that are contained in difficult to interpret footnotes.

Lofchie Comment: In another news story about CFTC footnotes, Chairman Gensler was quoted as saying, "swap dealers must be careful how they interpret regulations." This is an interesting comment in two respects: (i) first, the whole point of the controversy over footnotes in CFTC regulations is that the market does not know what those regulations mean; therefore the regulators should not chastise the market for failing to be careful about interpreting regulations - rather, it is incumbent on the regulators to issue rules that are readily understood (which is likely not to be the case where, as Professor Pirrong points out, important provisions are dropped into footnotes 88 and 513); (ii) second, in the interpretative guidance relating to cross-border activities (which is at least indirectly at issue here), the CFTC failed to issue regulations at all. As we previously noted, such guidance cannot legally form the basis of an enforcement action, and it will be likewise problematic for the CFTC to enforce rules which the entire market agrees are unclear and which relate to guidance that is not enforceable at all.

See: "I See Your Footnote 88, and Raise You Footnote 513, or Kafka Squared," Streetwise Professor.