CFTC Open Meeting, June 14, 2011

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	FINAL ORDER: On December 19, 2011, the CFTC issued a proposed order granting no-action relief until July 16, 2012 for certain Dodd-Frank Act related provisions.

On June 14, 2011, the Commodity Futures Trading Commission (CFTC) held an open meeting to consider effective dates of provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The meeting agenda also included plans to discuss and vote upon future meeting dates. ^[1]

Note: At its October 18, 2011 open meeting, the commission voted 5-0 to extend the effective date for swap regulations until July 16, 2012. All other provisions, as described in the documents below, remain the same. A final order on the effective date for swaps was issued on December 19, 2011. For more information, click HERE.

Archived webcast:

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Contents 1 Meeting Summary 2 Speakers 3 Related Documents: Federal Register, Q&A, Fact Sheet, Related Tables 4 References

Meeting Summary

The meeting was called in order to address a serious issue regarding Dodd-Frank implementation deadlines. The Act required implementation of swap-related rulemaking within one year of the Act's ratification, which was July 16, 2010. However, the Act also included language stating that provisions "shall become effective not less than 60 days after publication of the final rule."

The CFTC's final rulemaking phase has will not be completed until later in 2011, the commission has proposed granting temporary relief from compliance with such provisions. Summary of proposal:

• Since rules on definitions of swap related terms have not been finalized, the commission recommends a compliance exemption relating to entities or instruments such as swaps, swap dealers, major swap participants, and eligible contract participants. The proposal recommends granting the exemption until the effective date or December 31, 2011, whichever is earlier.
• Transactions in certain currently exempt and excluded commodities (primarily in financial and energy commodities) will be repealed as of July 16, 2011. The proposed Order would temporarily exempt such transactions from certain CEA provisions until the repeal or replacement of certain of the Commission’s regulations or December 31, 2011, whichever is earlier.
• The proposed temporary exemptive relief would not apply to:
  • futures contracts,
  • options on futures,
  • transactions by retail customers in foreign currency or other commodities,
  • any provision of Title VII of the Dodd-Frank Act that has already become effective, or
  • any implementing regulations that the CFTC has already issued or may promulgate under the Dodd-Frank Act.

The proposed Order would not limit in any way the CFTC’s ability to pursue fraud and manipulation.

Commissioner O'Malia's proposed amendment (see below) failed to pass (with Dunn, Chilton (by proxy) and Gensler voting against. The proposed order granting temporary relief passed 5-0, despite objections by Commissioners O'Malia and Sommers regarding the "arbitrary" extended deadline of December 31, 2011.

The upcoming meeting schedule has been proposed, with open meetings scheduled for July 7, July 19, August 4, September 8, and September 22, 2011. Among the first final rules to be discussed:

• Antidisruptive trade practices
• Large trader reporting
• Agricultural commodities definitions
• Credit ratings
• Position limits

Speakers

Chairman Gary Gensler; whose statements include:

• "There have been suggestions to delay implementation of the derivatives reforms included in the Dodd-Frank Act. That is not what today’s proposed order is. Instead, it provides the time necessary for the Commission to complete the rulemaking process to implement the Dodd-Frank Act."
• "Some might ask: why six months? Six months will provide the Commission with the opportunity to re-examine the status of final rulemaking in light of the changed regulatory landscape at the time. It would allow us, if appropriate at the time, to tailor relief from certain provisions of the Dodd-Frank Act at the end of the year."
• "It is important to note, however, that until the CFTC completes its rule-writing process and implements and enforces those new rules, the public remains unprotected."

Commissioner Scott O’Malia; whose statements include:

• "I believe that the proposed relief is imperfect for two reasons. First, the temporary exemptive relief will expire upon the earlier of: (1) the effective date of the applicable final rule further defining the relevant term/the repeal or replacement of the fallback exemptive provisions found in current parts 32 and 35 of Commission regulations; or (2) December 31, 2011. Second, the proposal is vulnerable to unintended consequences due to a lack of an order of final rule implementation."
• "December 31, 2011 is an arbitrary end point, and I am not persuaded by the proposal’s arguments in support of the December 31st sunset provision."
• "I have at least two solutions to many of the problems I have with this proposal. Today, I am introducing an amendment that would extend the relief in the proposed order until: (1) the Commission completes the relevant final rulemaking; (2) and the final rulemaking becomes effective. This amendment would give market participants the clarity and certainty that they have requested. This amendment would also be in line with the relief contemplated by fellow market regulators, such as the SEC."

Commissioner Michael Dunn;

• "Given our level of staffing, I believe that we are moving at a pace that ensures that rules we are writing follow the intent of Congress, are responsive to the comments of the American public, and based on sound and fundamental market principles. If we were to move slower, I fear that unnecessary delays may leave the country vulnerable to another financial crisis. If we were to move faster, I doubt the quality of the written rules would continue to remain at the high level I have become accustomed to receiving from the staff."
• "The proposed exemptive relief has a sunset provision of December 31, 2011 that I strongly support. While others may argue that the market requires certainty and there is no way we will meet this date, I believe these fears are unfounded."

Commissioner Jill Sommers;

• "For months I have been talking about the legal uncertainty that would arise on July 16th, and have said that the Commission needed to act sooner rather than later. Market participants have said the same thing. Instead of acting sooner, we are acting later, even though we have all known for many months that despite our best efforts, regulations implementing the new regulatory regime would never be finalized and effective by July 16th."
• "Legal uncertainty is mounting in the area of how the Commission views the extra-territorial application of its new authorities under Dodd-Frank. Despite many requests to clarify our view, we have said woefully little on the topic."
• "I believe it is irresponsible for us to calendar 5-7 final rules per meeting. We need the opportunity to consider every single issue included in each rule and think about the implications very carefully. If we do not, we will be doing a disservice to these critical markets, to market participants, and to the American public."

Commissioner Bart Chilton, unable to attend the meeting, sent the following prepared statement:
"We are taking these actions today out of necessity in an effort to provide time to craft thoughtful regulations and, to the extent practical, give some certainty to those impacted by the rules. However, we can't sit back. We need to push the pedal down and make time to finalize thoughtful rules as soon as possible. Markets are not much safer than they were when the economic meltdown occurred. We still aren't seeing into dark over-the-counter markets like we should, much less regulating them. We still lack limits on excessive speculation that is impacting consumers who at times are paying a Wall Street premium, and we have not addressed super fast cheetah traders who may be instigating mini flash crashes or posing risks to markets, and therefore consumers."

Related Documents: Federal Register, Q&A, Fact Sheet, Related Tables

The commission divided the Dodd-Frank provisions into four broad categories:

• Category 1: Self-Effectuating Provisions Subject to Rulemaking
  • These rules fall outside the proposed order, as such provisions will only become effective after the commission has finalized rules and set implementation dates.
• Category 2: Self-Effectuating Provisions Requiring Further Definition
  • These are swap terms whose definitions have not been finalized. A summary of these terms can be found here. These rules are subject to the proposed order.
• Category 3: Self-Effectuating Provisions which alter or repeal provisions of the Commodity Exchange Act.
  • The Dodd-Frank Act eliminates certain "safe harbors," such as exceptions in metals and energy markets and certain off-exchange transactions. Since the commission has yet to finalize rules on agricultural swaps, a category prohibited by Dodd-Frank, unless expressly permitted under the CFTC's authority.^[2] In order to prevent "regulatory gaps", Category 3 provisions will gain relief under the proposed order.
• Category 4: Provisions becoming Effective July 16, 2011
  • These provisions will not be effected by final commission rules, and are thus not affected by the proposed order.^[3]

References

1. ↑ CFTC to Hold Open Meeting to Consider Effective Dates of Provisions in the Dodd-Frank Act. CFTC. Retrieved on June 14, 2011.
2. ↑ Proposed Rulemaking Regarding Commodity Options and Agricultural Swaps. CFTC. Retrieved on June 27, 2011.
3. ↑ CFTC, SEC differ on new derivatives rules. Futures Magazine. Retrieved on June 27, 2011.