Speaking to international bankers last Tuesday in Washington, DC, Jill Sommers of the Commodity Futures Trading Commission (CFTC) expressed her “persistent grief” at the process being used to finalize reforms under the Dodd-Frank Wall Street Reform Act.

“I believe we should be crafting all of our regulations in a way that will allow them to stand the test of time and to not favor one market segment over another,” she told the Institute of International Bankers at its annual conference. “I believe that it is crucial for the marketplace and for market participants that we get these rules right and that we finalize them in a way that is reasonable and not politicize them.”

Sommers acknowledged that the Commission is operating in uncharted waters with the swaps market. “We have little experience in these [swaps] markets. The truth is we don’t know what the full impact of our rules will be, and we don’t know whether the assumptions we operate under are valid. Given this knowledge gap, it makes sense to start with a broader, more flexible approach and become narrower and more restrictive only as necessary and after we have sufficient experience.”

She also expressed concern with the CFTC’s Volcker proposal, which the agency issued several months after other major regulators released their proposal (see NGI, Jan. 16). The Volcker Rule bars federally insured depository institutions, bank holding companies and their subsidiaries or affiliates from engaging in short-term proprietary trading of any security, derivative and certain other financial instruments. Moreover, it prohibits banking entities from owning, sponsoring or having certain relationships with a hedge fund or a private equity fund.

The CFTC’s proposed Volcker Rule “is basically a mirror” of the joint rule proposed by the Board of Governors of the Federal Reserve system, the Office of Comptroller of the Currency, Treasury, the Federal Deposit Insurance Corp. and the Securities and Exchange Commission (see NGI, Oct. 17, 2011). The CFTC is a “supporting member,” while the banks are playing a “lead role,” CFTC Chairman Gary Gensler said. The agency has put the proposal out for comment for 60 days.

“The [CFTC] proposal is lengthy and extremely complex, and I do not think we spent sufficient time to fully consider all of its implications. I am troubled that this is the path the Commission has chosen,” Sommers said.

“Unfortunately, even with the lag time [between the CFTC Volcker proposal and the other agencies’ proposal] and the benefit of comment letters, we proposed a rule that is virtually identical to the other agencies’ proposed Volcker Rule. I had concerns about what the CFTC would do if other agencies re-propose their rules. I hope we will be prepared to withdraw our proposal and join a re-proposed Volcker Rule with the other agencies. Otherwise, it seems as if we have put ourselves on a separate track, which I fear will needlessly complicate an already convoluted and likely unworkable set of rules.”

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