One of the great strengths of our derivatives markets – today, just as in the past – is their dynamic nature.  These markets are constantly, and often rapidly, evolving in terms of the scope of products traded, the platforms on which those products are traded, and the participants that trade them.  As a result, “one-size-fits-all” rules often turn out not to be a “good fit” at all.

Throughout its history, the Commission has utilized carefully-crafted exemptions to smooth the sometimes rough edges of its regulatory framework so that it fits the dynamics of the derivatives markets.  Such exemptions help us adapt our rules to the realities of the marketplace.

As Congress has observed, exemptive authority “allow[s] the Commission to respond to future developments in the marketplace to avoid disruption and promote responsible economic and financial innovation, with due regard for the continued viability of the marketplace and considerations related to systemic risk in financial markets.”[1]  I support the Commission’s judicious use of its exemptive authorities for these purposes.

But being exempt from certain regulations does not necessarily mean being outside the Commission’s regulatory framework altogether.  An exemption is a privilege, not a right.[2]  Our job as Commissioners is to see that the exemptions we provide are appropriately tailored to fulfill the specific purpose for which they are adopted, while not undermining the agency’s ability to fulfill the broader customer protection and market integrity purposes of the CEA.

I believe that the final rule we are adopting today strikes the right balance.  It provides that the serious statutory disqualifications that are listed in Section 8a(2) of the CEA and that can preclude a commodity pool operator (“CPO”) from registering with the Commission can similarly preclude the CPO from acting in an exempt capacity under Rule 4.13, too.

To be sure, sophisticated market participants should be able “to enter into prudent business arrangements that they deem most appropriate for their operations and business needs.”[3]  But not all participants in exempt pools under Rule 4.13 will have the same degree of financial sophistication.[4]

In any event, drawing boundaries is at the core of our regulatory function.  I am very comfortable drawing a boundary such that persons or entities that have, for example, had a prior registration revoked or been convicted in the past ten years of a felony involving fraud or misappropriation of funds, may not offer themselves as an exempt CPO to clients.  Under our rules, a pool operator that believes its particular facts and circumstances make such a result unjust may request relief on an individualized basis.

I therefore support today’s final rule.  I want to thank the staff of the Division of Swap Dealer and Intermediary Oversight, the General Counsel’s Office, and the Chief Economist’s Office, for working with my Office to answer our questions and incorporate our suggestions.