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CFTC’s Wetjen: I’d like to teach the world to sing in perfect harmony

Speaking before the FIA last week, CFTC Acting Chairman Mark Wetjen emphasised the global nature of the derivatives markets and the consequent need for regulatory harmonisation. He began his speech praising the substituted compliance framework, opining that the comparability standard incentivises foreign jurisdictions to “harmonize their risk management, reporting, clearing, and execution standards with U.S. standards under Dodd-Frank”. He continues with a slight hint of regulatory imperialism,

 The CFTC was the first derivatives regulator to adopt a comprehensive regulatory regime to fulfill the G20 commitments, and for that reason alone, its embrace of the substituted compliance framework should mean that the regulatory outcomes sought by Dodd-Frank will be equally sought by legislators and regulators overseeing the most active derivatives markets globally.”

The intention is not for foreign jurisdictions to simply replicate the Dodd-Frank provisions, but to craft laws that result in the same outcomes. Note- the presumption being that “outcomes” does not denote market confusion, inter-agency rivalry and an avalanche of lawsuits. He states that the CFTC may consider a rulemaking next month which will permit “some types of clearing arrangements through foreign clearinghouses” and “will encourage other jurisdictions to develop principles for pre-trade transparency and impartial access in accord with U.S. standards”. He concludes by saying that global coordination is critical because the CFTC does not have enough funding and therefore “must leverage all of its regulatory partnerships in order to fulfill its mission”.

An interesting speech insofar as it contains hints that the CFTC may be open to revising its controversial cross-border “guidance” and a nod to intentions of humility. However, the repeated implication that global harmony must be sung to the tune of “the Star-Spangled Banner” resolutely fails to address fundamental questions posed by the whole of D-F Title VII. It remains to be seen whether the Dodd-Frank paper tsunami even approaches the G20 aims of transparency and accountability. The U.S should perhaps wait to see if its reforms make workable sense before they assume their imposition on the rest of the world.

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