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Gensler Says CFTC Mulling More ‘Exemptive Relief’ from Dodd-Frank
The head of the Commodity Futures Trading Commission (CFTC) Thursday said the agency plans to grant the derivative market “exemptive relief” — for the second time this year — from the sweeping Dodd-Frank Wall Street Reform and Consumer Act.
“Much like we did on July 14th of this year, I think this fall we will consider further ‘exemptive relief’ from the application of Dodd-Frank’s Title VII requirements,” CFTC Chairman Gary Gensler said during the 19th open meeting to consider reforms to the $30 trillion derivatives market.
“I’ve already directed staff to draft recommendations with relief appropriately tailored. For instance, if we complete product definitions further defining the term ‘swap dealer’…or further defining the term ‘swap,’ the exemptive relief might take on a little bit different form or words than it did in July,” he said.
In June the Commission voted to provide the “exemptive relief” from those provisions of Dodd-Frank that were “self-effectuating” on July 16, or did not require a rulemaking to comply with the financial overhaul measure signed into law by President Obama last year (see Daily GPI, June 15; July 22, 2010).
The exemptive relief extended to Dodd-Frank provisions that did not require rulemaking but reference “swap,” “swap dealer,” “major swap participant” or “eligible contract participant,” which the CFTC has not yet defined. Under the CFTC’s June decision, these persons or entities were temporarily exempted from complying with Dodd-Frank until Dec. 31 or whenever the terms were defined, whichever is earlier.
Gensler gave a “tentative outline” of the CFTC’s Dodd-Frank agenda for the remainder of this year and into 2012. “A more complete list will be available on our website,” he said.
“We’re going to consider rules thoughtfully. We’re not going…against the clock. There are likely to be many changes down the road,” when the CFTC has a chance to conduct an evaluation of the new rules, Gensler said. Commissioner Michael Dunn proposed that such an evaluation be done 12-18 months after the new rules go into effect. “If we’re landing the airplane upside down, we’re going to flip it over” and get it right, Dunn said.
Gensler said the next items the CFTC will consider will be rules related to clearinghouses, core principles and the controversial position limits. In the final quarter, he said the agency also hopes to consider final rules on entity and product definitions [a joint effort of the CFTC and the Securities and Exchange Commission (SEC)]; swap data record-keeping and reporting, real-time reporting; regulations related to trading platforms, called designated contract markets or exchanges and foreign boards of trade; and external and internal business conduct.
He signaled that a number of final rules — on swap execution facilities, capital margin, documentation, some segregation rules — will be carried over into 2012. And while the law requiring a clearinghouse to submit swaps to the CFTC to determine if they should be cleared takes effect Sept. 26, Gensler said he doesn’t expect the agency to be actively reviewing such submissions until early 2012, “more likely at the earliest at the end of the first quarter and into the second quarter of 2012.”
The CFTC Thursday took its first step toward mandating compliance with Dodd-Frank. It voted out a proposal establishing a schedule to phase in compliance with the new clearing and trade execution requirements of Dodd-Frank, and a schedule to phase in compliance with the new trading documentation and margining requirements of the year-old derivatives law.
For clearing, the proposal establishes different implementation timetables for swap transactions involving Category 1, Category 2 and Category 3 entities. Category 1 entities [swap dealers (SD), security-based swap dealers, major swap participants (MSP), major security-based swap participants or active funds] would have 90 days to comply with the mandatory clearing requirement; Category 2 entities (commodity pools; private funds, employee benefit plans; or persons engaged in the business of banking, or financial activities) would have 180 days to comply; and Category 3 entities (including those involving third-party subaccounts and those not excepted from the mandatory clearing requirement) would have 270 days to comply.
All three categories would have 30 days (after the swap is made available for trading) to comply with the CFTC’s trade execution requirement.
Before market participants can be required to comply with a mandatory clearing determination and the trade execution requirement, the CFTC first must:
The Commission must take one additional action before it can require market participants to comply with trade execution requirement. It must adopt the final rules for the swap execution facilities and demand contract markets, the agency said.
The CFTC established the same categories and schedule in its proposal requiring phased implementation of new trading documentation and margining requirements of Dodd-Frank.”The Commission believes that it is in the public interest to afford SD and MSPs additional time to comply with proposed rules related to trading documentation and margin requirements, depending on the type of counterparty with which the SD or MSP is trading,” the agency said.
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