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A kinder gentler CFTC?

In a speech whose title begins, as if actually imparting news, “We can do better..”  the Republican CFTC Commissioner Scott O’Malia focussed his critical attention on three main areas: data problems and progress, SEF’s and protecting end-users.

Data

  • Without investment in technology “major oversight functions will be severely impaired”.
  • Improvements are being made in the quality of data, as evinced by the recent announcement of a cross-divisional team to investigate data utility.
  • From March, the CFTC will seek comment from market participants and suggestions to improve the reporting process.
  • He hopes the CFTC will reengage with foreign jurisdictions in harmonising reporting rules.
  • “The future of our compliance and oversight mission must be electronic and data driven. In other words, this agency needs to become a 21st century regulator. So far, we have not articulated our mission and technology priorities, but I believe we can do better”.

SEF’s

  • Unknown whether SEF’s will become the “spitting image” of DCM’s.
  • The CFTC must “resist the temptation to impose a one-size-fits-all approach to SEF platforms.”
  • SEF trading should be encouraged, but not at the cost of the ability to trade combination products.

End-Users

  • The CFTC mission comprises two “competing” objectives- the reduction of systemic risk and the protection of end-users.
  • The CFTC “has neglected to safeguard end-users from costly compliance”,O’Malia cites a number of rules which are punitive in both costs and complexity to end-users: swap dealer rule, volumetric option definition, the latest position limits proposal et al.
  • The CFTC “must consider revising the rule to offer cost-effective alternatives, not another barrage of reflexive no-action letters.”

As usual, O’Malia’s speech is both eloquent and damning and worth reading in full. However, both the positive elements of the speech, combined with the agency’s announcements of data-utility analysis and associated market feedback, betoken a different style from the both the agency itself and its most telling critic. The triumvirate Commissioner rump has already turned its unanimous attention to making the existing Babel Tower of rules more univocal. Despite the little we know of incoming Chairman Timothy Massad; post-Gensler, it is likely that rulemaking will proceed at a gentler, more even pace. There is significant work to be done in shoring up the foundations of the existing rules, doubly so if the Agency loses its “Interpretative Guidance” case, perhaps the cement constituents will be 1 part democracy and 2 parts dialogue.

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