SEC and CFTC Chairs Highlight U.S. Regulatory Initiatives for Derivatives
SEC Chair Gary Gensler and CFTC Chair Rostin Behnam highlighted U.S. regulatory initiatives in "new era" for derivatives. Their remarks came at ISDA's Annual General Meeting in Madrid.
SEC Chair Gary Gensler highlighted the reasons for the adoption of derivatives regulation in Dodd-Frank and the beginning of an approaching "new era" for regulation of derivatives. In addition to highlighting recent SEC actions to implement a regulatory regime for security-based swaps ("SBS"), Mr. Gensler addressed the following of ongoing agency initiatives:
- registration and regulation of SBS execution facilities;
- implementation of trade reporting for SBS;
- proposed SEC anti-fraud rules; and
- proposed rules to prohibit undue influence of security-based swap dealers' chief compliance officers.
Mr. Gensler also addressed crypto assets, saying that "most crypto tokens are [securities] and that swaps on such assets are SBS." He also highlighted the necessity for platforms "whether decentralized or centralized" that offer SBS to comply with the SBS regulatory regime. Finally, he expressed concern for "so-called complex products," and highlighted the use of derivatives in ETFs and ETPs. Mr. Gensler said that he asked the SEC Divisions of Investment Management and Examinations to give attention to the use of derivatives by registered investment companies, and urged investors to consider risks carefully before investing in investment products that use derivatives.
CFTC Chair Rostin Behnam focused on a number of recent CFTC initiatives in his remarks, including:
- LIBOR transition and the recent CFTC proposal to require mandatory clearing of certain risk-free referencing swaps;
- implementation of "phase six" of initial margin requirements for uncleared swaps;
- efforts to increase data standardization in trade reporting;
- initiatives of the CFTC Climate Risk Unit, including an upcoming Voluntary Carbon Markets Convening and initiatives to consider regulatory changes that support innovation in risk management for orderly transition to a "zero-carbon future"; and
- CFTC initiatives in decentralized finance and digital assets, including the recent request for comment that would permit a DCO to offer non-intermediated clearing of margined products to retail investors.
Commentary
The differences in tone of Mr. Behnam and Mr. Gensler are marked. While each have ambitious regulatory initiatives, Mr. Behnam's goals essentially look to build on CFTC work from the recent past and have a measured, cautious tone toward new developments (e.g., the consideration of non-intermediated clearing, and urging more coordination and development of a regulatory framework for crypto assets).
In contrast, Mr. Gensler's statements are much lighter when it comes to any benefit of new products. On crypto, his words are a warning suggesting broad brush application of the securities law regime and enforcement actions. Similarly, on "so-called complex products" (by whom?) he urges additional regulatory action with little acknowledgment of the use of such products, nor does he make a case that there are violations or wrongdoing present to merit the additional regulatory attention.