The Commodity Futures Trading Commission (CFTC) “turned an important corner” this summer in issuing final rules to implement the Dodd-Frank Wall Street Reform and Consumer Act and has set an aggressive agenda for this fall, said Chairman Gary Gensler.

“We’ve now completed 11 final rules in the Dodd-Frank implementation, and we have a robust schedule this fall” that will be based on the more than 50 proposals the agency has issued so far, he told a CFTC-sponsored conference on commodity markets in Washington, DC, Thursday. The Dodd-Frank bill, which President Obama signed into law in July 2010, regulates for the first time the U.S. derivatives market, which has a notional value of $30 trillion (see NGI, July 26, 2010).

“Starting next month we’re likely…to take up [final] rules related to position limits and the clearinghouse principles,” Gensler said. The Commission is scheduled to meet on Sept. 22. The proposed rule on position limits, which seeks to curtail excessive speculation, is considered the most contentious of the rules being considered by the CFTC. It has the broad support of Democrats on Capitol Hill, but not Republicans.

The commission’s proposed rule on hard position limits, which was adopted in mid-January, would limit the amount of positions in futures and options contracts and economically equivalent swaps, other than bona fide hedge positions, that may be held by any entity in one of the 28 covered commodities, including crude oil, natural gas, heating oil and gasoline (see NGI, Jan. 17).

“I think shortly after that [position limits] that we’ll turn to business conduct standards — how the dealers work both externally and internally to lower risk,” which will likely be followed by the CFTC and the Securities and Exchange Commission jointly defining various entities in the derivatives market: swap dealers and major swap participants, Gensler said.

Dodd-Frank requires swap dealers and “major swap participants” (MSP) to clear their swaps, but it provides a de minimis exemption for companies that use over-the-counter (OTC) derivatives to mitigate their commercial risk.

In December the two agencies issued a proposal defining a “swap dealer” as an entity that holds itself out as a dealer in swaps; makes a market in swaps; regularly enters into swaps with counterparties as an ordinary course of business for its own account; or engages in activity causing itself to be commonly known in the trade as a dealer or market-maker in swaps (see NGI, Dec. 6, 2010).

Dodd-Frank subjects MSPs to clearing requirements because their market size is so large they pose a systemic risk. The new law provides a three-part definition for MSPs. An entity that satisfies any one of them is an MSP, according to the CFTC.

Following the definitions for swap dealers and MSPs, the agency will “try to finalize rules with regard to the exchanges and swap execution facilities, data reporting and end-user exception,” Gensler said.

Moreover, “this month it’s my hope that we’ll actually consider two additional proposals with regard to implementing phasing. We’ll be seeking additional comments on phasing for swap transaction compliance that would affect the broad market. More specifically, these proposed rulemakings would provide the public an opportunity to comment [on] compliance schedules [with respect] to swap clearing: when does the clearing mandate take place, how do we phase that [in] by market participant.”

The agency also will be seeking comments on phasing in of internal business conduct standards, he said. “These proposed rules are designed to smooth the transition from an unregulated market structure to a safer market structure.”

When the CFTC completes all of its Dodd-Frank rules, “I believe then it is…appropriate that the Commission take a step back at the right time in the future, not immediately, not a month later, and carefully evaluate the new regulatory landscape as a whole and how it’s actually working” and whether it may need to be adjusted, Gensler said. He said the CFTC “may get through all this” Dodd-Frank rulemaking in 2012.

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.