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CFTC To Change Cross-Border Swaps Rules
Traders Magazine Online News, September 11, 2018
J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission, will soon be issuing a white paper to improve deficiencies in the US regulator’s approach to overseeing cross-border activities and will cover non-US central counterparties, trading venues and swap dealers.
Giancarlo gave a speech to the the City of London Corporation last week.
He apologised for overreach by the CFTC in applying its swaps rules outside the US, which has resulted in a number of problems, and said the regulator will publish a white paper in the near future.
The regulator published cross-border swaps guidance in 2013 and applied its transaction rules to swaps traded by US persons globally. Giancarlo continued this alienated many overseas regulators and squandered important American leadership and influence in global reform efforts.
“This white paper will assess the CFTC’s application of its swaps rules to cross-border activities and make concrete recommendations for improvements,” he added. “In a number of areas, the white paper will recognize deficiencies in the CFTC’s current approach to regulating cross-border activities and seek to recalibrate the CFTC’s cross-border approach based on a set of guiding principles.”
Rise of central clearing
Giancarlo explained that the regulatory landscape is very different from 2013 and before the financial crisis. Since then non-US jurisdictions had made progress in finalizing the changes that were agreed at the Pittsburgh G20 Summit, particularly in central clearing, which he said is probably the most far-reaching and consequential reform.
“The default risk of swaps counterparties that was once spread across Wall Street is now pooled and managed within regulated central counterparties,” he said. “This is a significant achievement. I would say we are not in Kansas anymore (for those of you who recognize the reference), but as the chairman of the CFTC I have developed a certain fondness for Kansas, so I will simply say we are not in 2008 – or even 2013 – anymore.”
The commissioner compared the current CFTC framework as “Swaps Reform Version 1.0,” similar to the first version of a software application, and said Version 2.0 is required.
“The goal is to develop the next version of cross-border rules, which would be better calibrated to address systemic risk while fostering innovation, competition, and international cooperation,” he added. “Moreover, the CFTC should adopt proper and final cross-border rules rather than rely on less clear cut interpretive policy statements or guidance.”
The proposals will take account of the increased swaps trading data that the CFTC now receives concerning US-related trading activity and the potential build-up of risk in US-related entities.
The first principal will be the CFTC recognizing the difference between swaps reforms that are designed to mitigate systemic risk and those that address local market structure and trading practices - such as public trade reporting and price transparency, trading platform design, trade execution methodologies and mechanics, platform personnel qualifications, and examinations and regulatory oversight.
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