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T. Massad- déjà vu

In his keynote address before the Institute of International Bankers, CFTC Chairman Timothy Massad yesterday revisited some familiar themes. Under his leadership, the “new” CFTC cannot be accused of a lack of consistency. It is nevertheless a useful recap of the CFTC’s priorities as they begin the task of “fine-tuning” the discordant Dodd-Frank orchestra. A brief summary follows:

  • Margin Rule for Uncleared Swaps. The reproposed rule reflects the Agency’s focus on the commercial end-users, exempting them from the requirement. The CFTC recognises that the margin rule should be internationally consistent and may require further adjustment. Further revision may expected with respect to the supplementary leverage ratio, its potential negative effect on clearing and the market’s concerns as to its appropriateness have been noted.
  • Addressing Cross Border Issues. The Chairman uncontroversially believes that international harmonisation is difficult and that cooperation among regulators in the oversight of clearinghouses is critical. A productive dialogue continues with Europe to reach equivalent status and it is hoped that an agreement can be reached soon Mr Massad does make the point that the US already allows five “foreign” clearers and is reviewing applications from another three.
  • Clearinghouse Strength and Stability. Questions recently raised include capital adequacy, resolution planning and the transparency of risk mitigation and stress testing. Mr Massad points the work done by supranationals such as IOSCO and to the CFTC’s own work in these areas, asserting that these single issues must be seen within the broader context. The CFTC will host a roundtable discussion this Thursday to discuss recovery plans for CCPs.
  • Cybersecurity. The Chairman regards this as critical priority, it now forms part of the Core Principles to which regulated entities must adhere, security policies and recovery programs will be a regulatory focus. Attention will also be paid to the security and resilience of companies that run core infrastructure such as CCPs and major exchanges. A roundtable will held to discuss cybersecurity later this month.
  • Benchmarks. The CFTC does not agree with the government intervention approach adopted by the EU, preferring framework principles developed by IOSCO.
  • Resources . In a rare echo of his predecessor, the Chairman believes the Agency’s budget is too low. Predictable consequence – the CFTC will not be able to its job as well as it should.

Mr Massad concludes his speech with the derivatives regulator’s equivalent of “God Bless America” , praising the markets and their role in the wider economy. Mr Massad has done much to rein back the runaway horse that was the CFTC under Gary Gensler. Adherening to a few central, remediative aims, he has at least begun the task of restoring a measure of stability and certainty to the regulatory outlook.

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