Opening Statement, Meeting on the Twelfth Series of Proposed Rulemakings under the Dodd-Frank Act

Commissioner Jill E. Sommers

Thursday, February 24, 2011

Good morning. Thank you Mr. Chairman and thank you to the teams for their hard work on the proposals we consider today.

Before I address the specific proposals, I would like to talk about an issue that has become an increasing concern of mine – that is, our failure to conduct a thorough and meaningful cost-benefit analysis when we issue a proposed rule. The proposals we are voting on today, and the proposals we have voted on over the last several months, contain very short, boilerplate “Cost-Benefit Analysis” sections. The “Cost-Benefit Analysis” section of each proposal states that we have not attempted to quantify the cost of the proposal because Section 15(a) of the Commodity Exchange Act does not require the Commission to quantify the cost. Moreover, the “Cost Benefit Analysis” section of each proposal points out that all the Commission must do is “consider” the costs and benefits, and that we need not determine whether the benefits outweigh the costs.

At the outset I ask, how can we appropriately consider costs and benefits if we make no attempt to quantify what the costs are? But more importantly from a good government perspective, while it is true that Section 15(a) of the Commodity Exchange Act does not require the Commission to quantify the cost of a proposal, or to determine whether the benefits outweigh the costs, Section 15(a) certainly does not prohibit the Commission from doing so. We simply have chosen not to.

Clearly, when it comes to cost-benefit analysis, the Commission is merely complying with the absolute minimum requirements of the Commodity Exchange Act. That is not in keeping with the spirit of the President’s recent Executive Order on “Improving Regulation and Regulatory Review.” We owe the American public more than the absolute minimum. As we add layer upon layer of rules, regulations, restrictions and new duties, we should be attempting to quantify the costs of what we are proposing. And we should most certainly attempt to determine whether the costs outweigh the benefits. The public deserves this information and deserves the opportunity to comment on our analysis. That is good government. Our failure to conduct a critical analysis of costs and benefits simply because we are not required to is not good government.

Of the proposals we are considering today, I am most concerned about the Proposed Interpretive Order relating to disruptive trading practices. When it was first suggested that Dodd-Frank would contain a section that outlawed disruptive trading practices, I and others at the Commission believed it was unnecessary because the Commission already had the authority to prosecute such activity, and in fact, had prosecuted such activity successfully in the past. When the draft language of Section 747 was first discussed among Commission staff, it was my view, and the view of others in this building, that the language was too vague. We suggested that in order to remedy the vagueness, the Commission would need to promulgate rules to put the public and market participants on notice of what conduct was prohibited. I believed that we had consensus in the building around the view that if the draft language was included in the final legislation, clarifying rules would be necessary and appropriate. That is also the message we received from the public in response to the ANPR and the roundtable we held on this subject.

I am disappointed that we do not have proposed rules before us today.

I do not believe that the Proposed Interpretative Order is sufficient to take the place of rules. The disruptive trading practices statutory language is vague, and this proposal does not cure that vagueness. In many areas, the Order raises more questions than it answers. In my view, when issuing rules or guidance relating to prohibited conduct, the Commission’s first priority must always be to provide the public and market participants with clear parameters distinguishing prohibited conduct from legitimate trading activity. The goal should not be to retain maximum flexibility for Commission staff to investigate and prosecute alleged wrongdoing. That is what this Order does, and I cannot support this approach.

Again, I want to acknowledge all of the teams that worked on these proposals today. I appreciate all of the time you have spent and your dedication to this agency.

Last Updated: February 24, 2011