CFTC Open Meeting, February 23, 2012
|Final Rule Issue||Effective Date||Compliance Date|
|April 3, 2012||June 4, 2012||October 12, 2012|
|Final Rule Issue||Effective Date||Compliance Date|
|April 3, 2012||August 3, 2012||October 12, 2012|
|Final Rule Issue||Effective Date||Compliance Date, Non-Covered Firms||Compliance Date, Covered Firms|
|April 3, 2012||June 4, 2012||September 30, 2012||March 31, 2013|
|Final Rule Issue||Effective Date||No-action Relief, Valuation|
|April 3, 2012||June 4, 2012||June 30, 2014|
|Proposal Date||Final Rule Issue||Effective Date|
|February 23, 2012||May 31, 2013||July 20, 2013|
- The first set of internal business conduct standards for swap dealers and major swap participants and futures commission merchants; and
- Proposed Rule: Procedures to Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades; Further Measures to Protect the Identities of Parties to Swap Transactions The block trade rules were originally proposed at the November 19, 2010 open meeting, as part of the real-time trade reporting rules. The final rule on real-time reporting was approved on December 20, 2011.
- Note: The final rule on definitions of swap entities: "Swap Dealer," "Security-Based Swap Dealer," "Major Swap Participant," "Major Security-Based Swap Participant" and "Eligible Contract Participant was originally scheduled for consideration at this meeting. This rule, which has been proposed jointly with the Securities and Exchange Commission, will be considered at a later meeting.
Meeting Summary and Links to Related Documents
Both the final rules on internal business conduct standards and the proposed rule on block trading thresholds passed by a vote of 3-2. Commissioners Sommers and O'Malia voted against each rulemaking. For more information, see the Commissioners' comments below.
The next meeting is scheduled for March 20, 2012.
Chairman Gary Gensler; whose statements include:
- Support for the business conduct standards rule, which "will lower the risk that swap dealers pose to the rest of the economy," establishes "firewalls" between trading and research departments, "creates an audit trail detailing the full history of trades" and ensure that "risk management issues are elevated within management."
- Support for the block trading proposal, which "promotes both pre-trade and post-trade transparency."
Commissioner Jill Sommers, whose statements include:
Regarding the business conduct final rules, Sommers appreciates the hard work being done by staff, but she "cannot support the final product," as "there are too many provisions in the final rules that don’t make sense."
- "The preamble to the rules states, however, that a determination that a DCO is in compliance with the Commission’s core principles and regulations is no “substitute for the due diligence of registrants who must evaluate the use of a central counterparty in light of their own circumstances.” This begs the question – what is a registrant supposed to do to independently satisfy itself that a DCO has sufficient resources and procedures to clear a particular swap that it accepts for clearing? Can a registrant refuse to clear a swap the Commission has determined must be cleared because the registrant has determined that no DCO that accepts the swap for clearing is truly up to the task given the registrant’s particular circumstances?"
- I am most disturbed, however, by the walls we are erecting on communications between the trading and clearing units of swap dealers and affiliated FCMs."
- Regarding the block trade proposal, Sommers acknowledges that "if the block threshold is set too low, there will be reduced transparency in the market. If the block threshold is set too high, there will be reduced liquidity in the market."
- "Under the current proposal which recommends utilizing a 67% notional amount calculation, only the largest 6% of all IRS and CDS would be block trades. This proposal ignores Congress’ mandate that we take into account the impact of public disclosure on liquidity. We are effectively sacrificing liquidity at the altar of transparency."
Commissioner Bart Chilton, connected via telephone, whose statements include:
- "While I plan on voting for this [block trade] proposed rule, I do so with the caveat that we must, as we go forward, be extremely cognizant that all of these swaps rules are an interdependent set. It is a grave error to look at each rule as free-standing—they are not. These swaps regulations—the SEF rule, the block trade rule, the reporting rules, for example—all have to work together, have to be perfectly balanced, in order for the markets to function and for consumers to be protected."
- "I plan on supporting the internal business conduct rule as well, and I believe we have reached an appropriate equilibrium as to conflicts of interest, risk management issues, and duties and responsibilities of FCMs, swaps dealers, and major swaps participants. The public demands an end to the conflicts-ridden, insidious business practices that they’ve witnessed all too often. This rule represents, in my opinion, a balance that achieves the goals of protecting consumers and allowing markets to work."
- Finally, Chilton expressed frustration that position limits rules are not in force because of a delay in setting swap definitions rules. "I understand all the arguments about needing data, but I’m tired—and the American public is tired—of waiting for a swaps definition rule to be promulgated in order for position limits to be effective. "
Commissioner Scott O'Malia, whose statements include:
In his statement, and several times during the meeting, Commissioner O'Malia criticizes the lack of adequate cost-benefit analyses in commission rulemakings. He makes reference to President Obama's 2011 Executive Order 13563 “Improving Regulation and Regulatory Review” and states that, "in furtherance of that mission, I will not support the final rules governing various internal business conduct standards." O'Malia also states that the internal business conduct rules "ignore guidance offered by the Office of Management and Budget." Commissioner Mark Wetjen, whose statements include: