I support the proposed rulemaking to enhance the Commission’s ability to protect against manipulation. Today’s rule builds upon important new authorities that Congress granted the Commission to protect market participants in the commodities, futures and swaps markets. Together with the authority granted by Congress to prohibit disruptive trading, this proposed rule gives the Commission the broad new ability to effectively combat fraud and manipulation. The proposed rulemaking promotes fair and efficient markets, for the first time allowing the Commission to protect against fraud-based manipulation. I thank Senator Cantwell for her leadership in bringing this important new authority to the Commission.
Disruptive Trading Practices Rulemaking
I support the proposed Advanced Notice of Proposed Rulemaking concerning disruptive trading practices. Congress expressly prohibited three trading practices that it deemed were disruptive of fair and equitable trading. In addition, Congress granted the Commission authority to prohibit other trading practices that are disruptive of fair and equitable trading. Today’s advanced notice of proposed rulemaking asks 18 questions, the answers to which will inform moving forward with a proposed rule on this issue. Commission staff also will lead a roundtable on December 2 on disruptive trading practices. I am particularly interested in hearing from the public on algorithmic trading. In addition to the public comments and the December 2 roundtable, we will benefit from the input of the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues.
Credit Ratings Rulemaking
I support the proposal to remove any reliance on credit ratings within the Commission’s regulations. Under Title IX of the Dodd-Frank Act, Congress required that the Commission review references to credit ratings in our existing regulations and to specifically remove them if they were regarding certain financial instruments. The Commission has completed the required review of its regulations and has identified seven instances of references to credit ratings, five of which were regarding those financial instruments. Today, we are proposing removing all references and reliance to credit ratings. This rule addresses two of those references in Regulation 1.49, which limits the types of banks in which futures commission merchants and derivatives clearing organizations may place customer funds, and 4.24, which requires commodity pool operators to disclose to their customers where they are putting customer money. The other actions we are taking today regarding rule certifications in Part 40 and investment of customer funds in Regulation 1.25 and 30.7 will address the remaining instances of credit ratings.
Regulation 1.25 and 30.7 Rulemaking
I support today’s Commission vote on the proposed rulemaking regarding the investment of customer segregated and secured amount funds. This rulemaking fulfills part of the Dodd-Frank Act’s requirement that the Commission remove all reliance on credit ratings from it’s regulations. In addition, the rule enhances protections regarding where derivatives clearing organizations (DCOs) and futures commission merchants (FCMs) can invest customer funds. The market events of the last two years have underscored the importance of prudent investment standards to ensure the financial integrity of DCOs and FCMs and of maximizing protection of customer funds.
Swap Review Process Rulemaking
I support the proposed rulemaking to establish a process for the review and designation of swaps for mandatory clearing. One of the primary goals of the Dodd-Frank Act was to lower risk by requiring standardized swaps to be centrally cleared. The process set out in the proposed rule is consistent with the Congressional requirement that derivatives clearing organizations (DCOs) be eligible to clear the swaps and that before a swap becomes subject to mandatory clearing the public get to provide input on the contract or class of contracts. Though we have until July to finalize this rulemaking, it is my hope that we can finish by April. This would allow us to begin reviewing the contracts that are already being cleared by DCOs and under Dodd-Frank have already been deemed submitted to the Commission for consideration.
Part 40 Rulemaking
I support the proposal to publish for comment the proposed rule on the Commission’s process for certification and approval of rules and new products for designated contract markets (DCMs), derivatives clearing organizations (DCOs), swap execution facilities (SEFs) and swap data repositories (SDRs). The Dodd-Frank Act establishes enhanced procedures for Commission review and certification of new rules, rule amendments and products. Today’s rule gives important procedural guidance to registered entities on how to comply with Congress’s mandate for the Commission’s review of new rules and products.
Last Updated: January 18, 2011