CFTC Chair Massad Cites Progress in Commodity Market Regulation
Commentary by Steven Lofchie
CFTC Chair Timothy E. Massad outlined CFTC actions involving recordkeeping and margin requirements for uncleared swaps. In a speech before the Commodity Markets Council, he asserted that the CFTC has made "significant progress" in "protecting end-users from overly onerous regulatory burdens."
Chair Massad highlighted several recent actions concerning the regulation of the swaps market. They included the following:
-
Recordkeeping. The CFTC revised a rule to allow members of exchanges and swap execution facilities who are not registered with the CFTC – such as end users – to delete pre-trade communications and text messages. The amended rule also states that commodity trading advisors do not have to record oral communications regarding their transactions.
-
Centralized Treasury Units. The CFTC worked on legislation with lawmakers on Capitol Hill and in the Administration that would assist end users who employ "centralized treasury units."
-
De Minimis Exception. The CFTC released a staff report that takes a "fresh look" at the issue. Although the report does not recommend a precise level for the de minimis limit, it invites public comment on the data and methodology to be used.
Chair Massad also discussed several "matters" on the CFTC's agenda:
-
Trade Options. This CFTC proposal would eliminate the obligation of commercial participants to report trade options to swap data repositories.
-
Position Limits. The CFTC proposed modifications to the provisions of the rules that would "streamline the process for waiving aggregation requirements when one entity does not control another's trading, even if they are under common ownership." The CFTC also is considering "the possibility of further modifications, which would have the exchanges play a greater role in granting exemptions for non-enumerated hedges."
-
Clearinghouse Strength and Resiliency. "[C]onsiderable efforts" are being made domestically and internationally to ensure that clearinghouses are strong and safe, including developing recovery and resolution planning standards for stress-testing. The CFTC approved the registration of Eurex Clearing. However, a determination of "equivalence" has yet to be issued by the European Commission.
-
Cybsecurity. The CFTC unanimously approved two new rules to (i) enhance cybersecurity protections and (ii) minimize the risk that automated trading will cause market disruptions. The rules will require adequate risk controls, monitoring and other measures.
Chair Massad expressed his disappointment with the lack of a budgetary increase for the CFTC in the 2015 federal spending bill:
[T]he CFTC's appropriation simply doesn't match our responsibilities. The markets we oversee are critical to commercial businesses, and profoundly affect the prices all Americans pay for many goods and services in our daily lives. Sensible regulation requires adequate resources, and is a good investment for our economy. So we'll continue working to ensure Congress understands the important work we do, he said.
Chair Massad delivered his keynote speech before the Commodity Markets Council at its 2016 program on the State of the Industry.
Commentary
Given the scope of its responsibilities under Dodd-Frank, the CFTC is underfunded. Many of those responsibilities might be ill-conceived, but that is not the fault of the CFTC; the blame belongs with Congress. Indeed, Chair Massad has pointed out that the CFTC is in the process of reducing some of the burdens it had imposed previously. Even so, progress in that direction should be faster.
That said, it is difficult to feel sympathy for an agency that continues to push for rules that will be enormously burdensome to implement, for both the agency itself and for the economy as a whole. In light of the events of the past few years, on what possible policy basis can the CFTC justify the imposition of position limits on energy? Haven't events made clear that the ability of energy speculators to withhold energy from the market and drive up prices would prove trivial compared to the power of sovereign nations – e.g., Saudi Arabia, Iran, Russia and private suppliers of oil, including in the United States – to pump more oil into the market and take advantage of any supposedly artificial price bump? If the regulators continue to expend resources on rules predicated on flimsy premises, does it make sense to increase their funding?
Related Articles
-
CFTC Chair Timothy Massad updated key issues currently before the CFTC and detailed progress on updates on various current issues being addressed by the CFTC.
-
CFTC Chair Massad provided an overview of the CFTC actions taken at the close of 2015 and outlined priorities for 2016.
-
CFTC Chair Timothy Massad criticized the failure of the 2016 budget agreement to provide "even a small increase" for the CFTC's "critical work" in a market with a budget of $1.1 trillion.