Swap Execution Facilities Regulation Regulation - White Paper - Pro-Reform Reconsideration of the CFTC Swaps Trading Rules: Return to Dodd-Frank - J.Christopher Giancarlo, January 2015

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January 2015

On Jaunuary 29, 2015, CFTC Commissioner J. Christopher Giancarlo released this paper, which analyzes flaws in the CFTC’s implementation of its swaps trading regulatory framework under Title VII of the Dodd-Frank Act and proposes a more effective alternative.<ref>CFTC Commissioner J. Christopher Giancarlo Releases Swaps Trading Rules White Paper. CFTC. Retrieved on January 29, 2015.</ref> The called the paper "a constructive step forward" in the market structure dialogue that seeks to restore flexibility and choice in trade execution."<ref>ISDA statement re: CFTC Commissioner Giancarlo’s White Paper on SEF Rules. ISDA. Retrieved on January 30, 2015.</ref>

This paper begins with a broad overview of the complex structure of the global swaps market. It then reviews the clear legislative provisions of Title VII of the Dodd-Frank Act. Next, it reviews in detail the Commission’s flawed implementation of the Dodd-Frank Act’s swaps trading provisions.

Consequences of the Current "Flawed" Model[edit]

According to Giancarlo, flaws in the current model include: Driving global market participants away from transacting with entities subject to CFTC swaps regulation.

  • Fragmenting swaps trading into numerous artificial market segments.
  • Increasing market liquidity risk.
  • Making it highly expensive and burdensome to operate SEFs.
  • Hindering swaps market technological innovation.
  • Opening the U.S. swaps market to algorithmic and high-frequency trading.
  • Wasting taxpayer money when the CFTC is seeking additional resources.
  • Jeopardizing relations with foreign regulators.
  • Threatening U.S. job creation and human discretion in swaps execution.
  • Increasing market fragility and the systemic risk that the Dodd-Frank regulatory reform was predicating on reducing.


The white paper is divided into five tenets - comprehensiveness, cohesiveness, flexibility, professionalism and transparency. Among the recommendations:

  • Clear up ambiguities in the rules regarding registration of swap participants
  • Remove the artificial segmentation between Required Transactions and their limited execution methods and Permitted Transactions and their broad execution methods, and between block transactions “off-SEF” and non-blocks “on-SEF.”
  • Permit trade execution through “any means of interstate commerce”
  • Allow products to evolve naturally
  • Let market structure be determined by the market
  • Accommodate beneficial swaps market practices
  • Treat core principles as general principles
  • Establish standards of professionalism for brokers in the OTC market

Related Document: Giancarlo White Paper, January 2015[edit]


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