We strongly disapprove of the new proposal to change rules for derivatives trading announced in today’s meeting of the Commodity Futures Trading Commission (CFTC). The requirement that complex derivatives be traded whenever possible in open, competitive markets was a crucial element of Dodd-Frank derivatives market reforms.
AFR Report: The Same Old Song – Wall Street’s repeatedly discredited but endlessly repeated arguments against common-sense financial regulation
A look back at the financial lobby’s robotic opposition to one proposed reform after another, and how Wall Street’s claims have squared with real-world events. This new AFR report homes in on three pre-financial-crisis case studies, involving credit cards, mortgages, and derivatives.
“By freezing the CFTC’s funding at its current inadequate level for the next five years, this legislation exacerbates the agency’s most fundamental problem – a lack of resources to accomplish its mission. After the 2008 financial crisis, the CFTC became newly responsible for hundreds of trillions of dollars in previously unregulated swaps markets. …Even as it fails to address the pressing problem of funding, HR 238 would also load down the CFTC with additional mandates that would drain resources and act as a roadblock to necessary oversight and enforcement.
We strongly support using Consolidated Foreign Subsidiary (FCS) status as the basis for cross border enforcement rather than the more amorphous and subjective “guaranteed subsidiary” status. …We strongly disagree with the Commission’s proposal to exclude a wide range of transactions involving foreign branches and affiliates of U.S. swap dealers from external business conduct requirements.
We are deeply concerned that the Investment Company Institute (ICI) Letter lays out a set of changes to the Proposed Rule which wold effectively negate the derivatives exposure limits in the rule and render them useless as a tool for controlling speculative leverage at registered funds, as is required by the 1940 Act. …This change would not simply modify the relative weighting of derivatives exposures, but would result in a massive increase in the absolute limit on derivatives risk exposure.
“AFR is disappointed at the continuing extension of exemptions from swaps reporting for foreign dealers active in the U.S. markets. Some of the transactions to which this relief applies, such as transactions with supposedly non-guaranteed affiliates of U.S. banks, could be highly relevant to derivatives risks within the U.S. economy.”
“At today’s meeting, the Commodity Futures Trading Commission (CFTC) will rule on whether derivatives margin rules required by Japanese regulators are comparable to U.S. margin requirements… Japanese margin rules are significantly weaker than U.S. rules in several important areas. These include margin protections in case of the bankruptcy or failure of a foreign counterparty, and the types of non-cash margin accepted. Permitting U.S. firms to operate under these weaker rules would constitute an unacceptable back-door weakening of U.S. margin rules. We are concerned that such a comparability determination would set a precedent for permitting similar weakening in other jurisdictions and in other areas of derivatives oversight.”
AFR in the News: SEC Rule to Limit Derivatives Alarms Industry With Liquidity Concerns (Morning Consult)
“A Securities and Exchange Commission proposal to place caps on registered investment firms’ exposures to derivatives is showing the hallmarks of a classic Washington battle — the industry is trying to tamp down advocacy groups’ requests for broad regulations. Although the SEC hasn’t announced its plans, lobbyists who have been watching the derivatives rule expect the agency to move forward in the coming months. Watchdog groups like Better Markets and Americans for Financial Reform have championed the proposal…”
“[Banks] are turning to the 79th page of a 2013 document titled “Regulatory Capital Rules” and looking at footnote 151. That reference effectively lets banks hold less capital against shorter-term derivatives… ‘This is classic regulatory arbitrage,’ said Marcus Stanley, policy director for public-interest group Americans for Financial Reform.”