CFTC Open Meeting, July 7, 2011

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Timeline, Position Reports for Physical Commodity Swaps
Final Rule Effective Date No-action Relief Deadline
July 22, 2011 September 20, 2011 June 30, 2013
Dodd-Frank Timeline, Proposed Rule Regarding Prohibition of Market Manipulation
Proposal Date Final Rule Effective Date
November 3, 2010 July 14, 2011 August 15, 2011
Dodd-Frank Timeline, Privacy of Consumer Financial Information
Final Rule Issue Effective Date Compliance Date, SD/MSPs
July 22, 2011 November 21, 2011 October 12, 2012; no-action relief pending
Dodd-Frank Timeline, Business Affiliate Marketing
Final Rule Issue Effective Date Compliance Date
July 22, 2011 September 20, 2011 September 21, 2012
Dodd-Frank Timeline, Agricultural Commodities Definition
Proposal Date Final Rule Effective/Compliance Date
October 26,2010 July 13, 2011, September 12, 2011

The Commodity Futures Trading Commission (CFTC) approved the following final Dodd-Frank related rules at an open meeting on July 7, 2011:

Archived webcast:

Meeting Summary and Links to Related Documents

Each of the five rules passed 5-0. Most of the discussion between staff and commissioners was in regard to the market manipulation regulations. While commissioners applauded the fact that the new rules broadened the CFTC's ability to pursue insider trading and other fraudulent practices, there was concern that the new rules may create confusion (see commissioners' statements below).

Regarding the consumer protection rules, Commissioner O'Malia asked why the daily monitoring would require six CFTC staff members, especially as much of the duty would be handled by the National Futures Association (NFA).

Regarding the large trader reporting rules, commissioners appreciated the greater transparency, noting that the rules will be "instrumental" as the commission contemplates final rules on position limits.

Speakers

Chairman Gary Gensler; whose statements include:

  • "The 2008 financial crisis came upon us because the financial system failed. The financial regulatory system failed as well. Though there were many causes to the crisis, it is clear that swaps played a central role. They added leverage to the financial system with more risk being backed up by less capital. They contributed, particularly through credit default swaps, to the bubble in the housing market and helped to accelerate the financial crisis."
  • "the Commission's anti-manipulation reach is extended to prohibit the reckless use of fraud-based manipulative schemes. This closes a significant gap, as it will broaden the types of cases we can pursue and improve the chances of prevailing over wrongdoers."
  • Regarding his support for the large trader reporting rule, "Today’s rulemaking will enable the Commission to gather important swaps data until there are robust, well-regulated swap data repositories. This data will be useful for the Commission to monitor and police the markets, including establishing and enforcing position limits."
  • Support for the consumer protections embedded in the FCRA and Gramm-Leach-Bliley Act rules.

Commissioner Scott O'Malia, whose statements include:

  • "Our duties can be characterized in two words: (i) transparency and (ii) clarity."
  • "Failure to provide clear guidance will not only generate market uncertainty, but it may prevent us from effectively enforcing our own regulations...I have concerns that the Anti-Manipulation rule has not provided adequate clarity and that such vagueness as to the course of action that will be taken by the Commission in enforcing this rule will add confusion to the markets."
  • "I support the Large Trader Reporting Rule because obtaining data is fundamental to our oversight responsibilities."
  • O'Malia brings up a fundamental problem with the progress of regulations, asking, "how can the Commission move forward on a final regulation implicating “swap dealers,” when the Commission has not determined if the term captures end-users?"
  • O'Malia concludes with the reiteration of his request that the Commission publish an implementation schedule, stating, "It’s time that we end the rulemaking mystery, and pull back the curtains so the market has the opportunity to review the implementation plan and provide comment on its feasibility."

Commissioner Michael Dunn, whose statements include:

  • "Before even considering any final rule, I have asked each rule writing team to answer a set of questions that basically ask three things:
  1. whether or not the proposed final rule adheres to the agency’s principle-based regulatory approach, and if not, why not;
  2. whether staff has the resources, both human and fiscal, to implement the proposed final rule as drafted; and
  3. if there are insufficient resources, how will duties and staff prioritize the work they are currently doing with the work that the Dodd-Frank rules require.
  • "I also am interested in how staff will prioritize their work in the post-Dodd-Frank world. While it is important to meet all the new mandates of the Dodd-Frank Act, I think it is equally important that the commodities markets continue to function as effectively and efficiently as they always have."

Commissioner Jill Sommers, whose statements include:

  • "If we stick to [the current] schedule, I foresee a process that haphazardly requires votes to be taken when the Commission has not had time to sufficiently consider all of the implications of the final rules. This schedule would also make it very difficult to coordinate with fellow regulators domestically or internationally."
  • "...we should adopt a plan that starts with finalizing the entity and product definitions, and builds from there, driven by a logical progression rather than an arbitrary deadline."
  • "I support all of the rules we are voting on today, but I have lingering concerns and questions about the anti-manipulation rules."

Commissioner Bart Chilton, whose statements include:
"With the adoption of this new [manipulation] rule, the Commission will be able to prosecute a broader array of commodity law violations. Here are a few of them:

  • First, it will give us the ability to go after fraudulent practices that manipulate prices—like disseminating misinformation about the global availability of crude oil to manipulate the market.
  • Pocketing profits from the misuse of privileged information will now be prosecuted. We’ll be able to get at, for example, bad actors akin to insider traders.
  • Also, this new regulation moves us toward a reckless standard similar to that under securities laws as defined by the courts, and the law specifically gives us a reckless standard for false reporting."

References

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