CFTC Open Meeting, January 11, 2012

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Gavel.png FINAL RULES:
Dodd-Frank Timeline, "Volcker Rule," CFTC
Proposal Date Comment Deadline Final Rule Released
February 14, 2012 April 16, 2012 December 10, 2013
Dodd-Frank Timeline, Protection of Cleared Swaps Customer Contracts and Collateral, Commodity Broker Bankruptcy Provisions
Final Rule Issue Effective Date Compliance Date
February 7, 2012 April 9, 2012 November 13, 2012
Dodd-Frank Timeline, Registration of Swap Dealers and Major Swap Participants
Final Rule Issue Effective Date Compliance Date - Swap Dealers Compliance Date - Major Swap Participants
January 19, 2012 March 19, 2012 January 1, 2013 October 12, 2012
Dodd-Frank Timeline, Business Conduct Standards for Swap Dealers and Major Swap Participants
Final Rule Issue Effective Date Compliance Date (Extended)
February 17, 2012 April 17, 2012 May 1, 2013

The Commodity Futures Trading Commission (CFTC) held a public meeting on Wednesday, January 11, 2012, on the following topics:

  • Final rule on registration of swap dealers and major swap participants (SD/MSPs);
  • Final rule on the protection of cleared swaps customer contracts and collateral and conforming amendments to commodity broker bankruptcy provisions
  • Final rule on business conduct standards for SD/MSPs with counterparties;
  • A proposed rule on prohibitions and restrictions on proprietary trading and certain interests in and relationships with hedge funds and private equity funds (an adaptation of the Volcker Rule; and
  • A delegation of authority order, which would outsource registration functions for SD/MSPs to the National Futures Association (NFA).

View Webcast[edit]

Meeting Summary and Links to Related Documents[edit]

  • The customer collateral protection final rule passed 4-1, with Commissioner Sommers voting against the rule. See Sommers' statement below.
  • The business conduct standards rule passed 4-1, with Commissioner Sommers voting against the rule. See commissioners' statements below.
  • The registration of swap dealers and major swap participants rule passed 5-0. Also included in the vote was an approval of the order delegating authority of the registration process to the National Futures Association (NFA)
  • The proposed rule on the Volcker Rule adaptation passed 3-2, with Commissioners Sommers and O'Malia voting against the proposal.
  • The commission announced its next open meeting to be held on January 25, 2012. A tentative meeting schedule would be made available on the commission web site.
  • Note: The January 25, 2012 meeting was subsequently canceled.


Chairman Gary Gensler; whose statements include:

  • Gensler supported all of the meeting's rulemakings.
  • Regarding the segregation of cleared swaps customers rule: "FCMs and DCOs must hold customer collateral in a separate account from that belonging to the FCM or DCO. It prohibits clearing organizations from using the collateral of non-defaulting, innocent customers to protect themselves and their clearing members. For the first time, customer money must be protected individually all the way to the clearinghouse."
  • Regarding the external business conduct standards rule: "The rules prohibit fraud and certain other abusive practices. They also implement requirements for swap dealers and major swap participants to deal fairly with customers, provide balanced communications, and disclose material risks, conflicts of interest and material incentives before entering into a swap."

Commissioner Jill Sommers, whose statements include:

  • Criticism of the Volcker Rule proposal, saying "we are proposing rules that are virtually identical to the other agencies’ proposed rules well after they have been widely criticized and after many have called for those agencies to start over, including Paul Volker. What will we do if they re-propose their rules? Will we be prepared to withdraw our proposal and join a re-proposed Volker Rule with the other agencies?"
  • "We have already learned that the final rules we adopted for large trader reporting of swaps are unworkable, which required staff to issue broad, market-wide no-action relief. Market participants were telling us all along that our requirements and deadlines were not workable, but we went ahead nonetheless. I suggest we learn from that experience and pay closer attention to what market participants tell us about legitimate compliance challenges and obstacles."
  • Regarding the business conduct standards, "as I listened to special entities tell me how our so-called protections would actually harm them, I could not help but think of President Reagan and his statement that 'The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.' I will be voting against the business conduct rules."
  • Sommers expressed concerns on the FCM rule, saying "We did not focus on the risks customers face due to actions of the FCM. Given recent events, we need to re-think this approach so we can provide adequate protections, in a comprehensive and coherent way, to swaps customers and to futures customers. I do not favor a piecemeal approach to customer protection."

Commissioner Bart Chilton, connected via telephone, whose statements include:
"I’ve got several suggestions I’d like to propose, to further protect American investors and consumers. Specifically, they are:

  • Institute an insurance fund in the derivatives space, similar to what is now in place in the securities and banking industries;
  • Revise our Regulation 1.25, to pull back on the types of investments that brokers can use to invest customer funds;
  • Institute a policy of “customer choice,” to allow individual customers to opt out of any type of investment whatsoever using segregated funds;
  • Develop a “guaranteed customer account” which would in essence provide another alternative for customers to keep segregated funds safe;
  • Explore the concept of regularizing treatment of futures and swaps segregated funds to more fully protect customers.

"Lastly, I don’t think we have any time to waste on moving on these ideas. Although we are moving today to consider institution of a more protective “LSOC” regime—which I support—I believe that the lessons of MF Global teach us that we don’t have the luxury of time in making additional progress to protect customers. We need to do more. And we need to do it now."

Commissioner Scott O'Malia, whose statements include:

  • I support the final rulemaking on the protection of cleared swaps customer contracts and collateral. However, this rulemaking does not address – much less solve – MF Global. This rulemaking, properly understood, is simply a first step in the Commission’s re-consideration of its customer segregation regime – for both futures customers (who are bearing the brunt of MF Global) and cleared swaps customers." View O'Malia's separate statement on cleared swaps customers and MF Global
  • "I do not support the Commission’s version of the Volcker Rule. It is an unworkable solution that is entirely too complex and provides the Commission with little-to-no means to enforce – and to deter violations of – the Rule." View O'Malia's separate statement on the Volcker Rule
  • Today’s final rules relating to external business conduct standards represent an informed integration of the statutory language, congressional intent, existing statutory, regulatory, and self-regulatory requirements for market professionals, securities law, and industry best practices."
  • Regarding the registration rules, O'Malia appreciates that the final rule "is an improvement over the proposal and rivised in two significant ways," namely the granting of provisional registration pending application review and a phased implementation schedule. However, the rules fail to address the issue of the treatment of swap dealers that are registered as an associated person of more than one firm. O'Malia hopes that this oversight will be addressed quickly.

Commissioner Mark Wetjen, whose statements include:

  • "I am confident that, at present, the legal segregation with operational commingling model (“LSOC”)—or the “complete legal segregation model” as it has been re-termed in the final—sets forth the most cost effective framework to protect customer collateral for swap transactions...But no regulation—indeed, no segregation model in itself—will in every case prevent the willful misappropriation of customer funds. That is why I have asked the staff to consider whether additional or other collateral protections could further reduce risks to customer collateral."
  • "The final rule [on business conduct standards] will build strong, new investor protections into the swap marketplace. It includes robust disclosure requirements that ensure counterparties receive information sufficient to assess the nature and extent of the material risks of a swap."
  • Regarding the Volcker proposal: "this proposal is an important step towards finalizing the Volcker Rule and providing much-needed regulatory certainty to the public and the banking community. The Commission’s issuance of this proposal, together with the recent extension of the comment period by the other financial regulatory agencies, will afford the public an appropriate opportunity to review and comment on each agency’s Volcker Rule."



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