Exchange representatives and end-users Thursday called on Congress to give the Commodity Future Trading Commission (CFTC) more time -- beyond the current July deadline -- to implement final rules for the multi-trillion dollar derivatives market in the United States.
"This Congress can mitigate some of the problems that have plagued the CFTC rulemaking process by extending the rulemaking schedule so that professionals, including exchanges, clearinghouses, dealers, market makers and end-users can have their views heard and so that the CFTC will have a realistic opportunity to assess those views and measure the real costs imposed by its new regulations," said Terry Duffy, executive chairman of CME Group, during the first in a series of oversight hearings by the House Agriculture Committee on the Dodd-Frank Wall Street Reform Act by the House Agriculture Committee.
"We support the overarching goals of [Dodd-Frank] to reduce systemic risk through central clearing and exchange trading of derivatives, to increase data transparency and price discovery, and to prevent fraud and market manipulation," he said. However, the legislation "left many important issues to be resolved by regulators with little or ambiguous direction and set unnecessarily tight deadlines on rulemakings by the agencies charged with implementation of the act."
In addition to the tight deadlines, the CFTC has proposed rules that are beyond the boundaries of Dodd-Frank, said the official with CME, which owns and operates the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange and 90% of the Dow Jones Indexes. "We urge the Congress to ensure that implementation of [Dodd-Frank] is consistent with the congressional directives in the act."
Scott Morrison, CEO of Colorado-based Ball Corp., a member of the Coalition for Derivatives End-Users, expressed a similar concern. "The current rulemaking timeline is aggressive and may force regulators to prioritize speed over quality. Doing so could hurt companies' ability to manage their risks.
"We would urge Congress to provide regulators with more time for rulemaking, and for regulators to allow market participants sufficient time for implementation." Morrison noted that Gensler has asked businesses to provide input on a realistic implementation timeline. While that is a positive step, "developing a workable implementation timeline still would not fix the problem of too many rules being promulgated over too little time. The statutory effective date must be extended for end-users to be able to participate meaningfully in the regulatory development process," he said.
Robert Pickel, executive vice chairman of the International Swaps and Derivatives Association Inc., said it was "concerned that the volume of and the compressed time frame for finalizing the rules required under the act may work against the [Dodd-Frank] law's essential purpose."
Moreover, "We...are concerned that some of the proposed regulations go beyond the statutory requirements of the Dodd-Frank Act and will create new obligations or set new standards that will fundamentally and negatively affect the existing swaps markets with little apparent benefit," Pickel said.
Committee Chairman Frank Lucas (R-OK) asked Gensler whether the Commission needed more time to issue its regulations. Gensler responded that the CFTC was taking a "pause" now in its rulemaking process and would likely take up final rules in spring and summer. "We're human; some of it [may] slip" past the July deadline, he said. Dodd-Frank requires the CFTC to complete the rulemaking process by July.
Lucas alluded to the concerns shared by a "broad cross-section" of entities with the CFTC's proposed regulations for the $300 trillion derivatives market. He further recommended that Gensler take steps to avoid the "divided votes" on the Commission. He indicated that the committee would be watching the CFTC "very closely" in the days and weeks ahead.
Gensler also was questioned about the CFTC's budget. "We don't have the budget to oversee" implementation of the Dodd-Frank Act, he said. But he estimated that the agency will need upwards of 400 more staffers to enforce Dodd-Frank. It currently has 680 staffers, most of whom oversee the futures market.
"We are one of the few financial regulators that are not self-funded," Gensler said.
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