AFR Press Statement: CFTC’s Final Rules on Swaps Dealer Business Conduct

DATE: January 11, 2011   

CONTACT: John Carey at 202-466-1854          

AFR Statement on CFTC’s
Final Rules on Swaps Dealer Business Conduct

Washington, DC – Americans for Financial Reform, a coalition of more than 250 national and state organizations working together for strong Wall Street reform, issued the following statement today:

“The final rules on swaps dealer business conduct approved by the CFTC today represent a significant weakening of the Commission’s initial proposed rules in this area. The Dodd-Frank Act created a significant set of new protections for public entities and pension funds in the derivatives markets. These rules, unlike the initial proposal, are simply not sufficient to fully implement the Dodd-Frank protections. The numerous opt-outs, exceptions, and safe harbors in the final rule can effectively give swap dealers a free pass out of  compliance with key statutory protections. Given the dramatic changes between the initial and final rules, fierce lobbying by the derivatives industry appears to have had an impact in weakening the rule.

Swap dealer abuse and exploitation of less sophisticated customers in derivatives markets were a major issue in the financial crisis. The Jefferson County bankruptcy – the largest municipal bankruptcy in American history — is only the tip of the iceberg in this area. There are dozens of other lawsuits and a great deal of evidence of pervasive overcharging across numerous public entities even in cases which do not go to court. While swaps can be a useful risk management tool in some cases, the complexity of derivatives contracts makes it easy to use them to hide embedded risks and price gouging. These issues become especially problematic for public entities and pension funds entrusted with public or retiree money, who can in many cases be less sophisticated than corporate clients. It is very unfortunate that the CFTC has not fully implemented the intended Dodd-Frank protections in this area.

Other rulemakings at the Municipal Securities Rulemaking Board and the Department of Labor also touch on these issues. Industry lobbyists are working hard to weaken protections against Wall Street exploitation of public entities and pension funds in these areas as well. Americans for Financial Reform and other public interest groups will continue to work to support real, durable protections for taxpayers and pension holders.”