SIFMA President Kenneth E. Bentsen, Jr. today testified before the Senate Agriculture Committee on reauthorization of the Commodity Exchange Act.
"SIFMA supports many of the goals of Dodd-Frank's Title VII with respect to swaps," Bentsen said in written testimony. "However, we remain concerned about how regulators, especially the CFTC, are interpreting and implementing many of these provisions. Indeed, in a few instances we also believe it is necessary that Congress amend the Act, as some provisions are duplicative and, at times, counterproductive."
Bentsen's testimony highlights a number of issues SIFMA believed should be included in Commodity Exchange Act (CEA) reauthorization, including:
- Cross Border. The CFTC has recently announced an agreement with the European Commission regarding the path forward for cross-border application of derivatives regulations, but details still remain to be worked out. In addition, the CFTC has issued final guidance on how Title VII rules will be applied extraterritorially. SIFMA is concerned about many of the ambiguities and complex elements of the guidance, including the definition of U.S. person. SIFMA continues to call for greater coordination between the CFTC and SEC, as well as international regulators. SIFMA urged the Committee to include House-passed legislation (H.R. 1256) that would address cross-border coordination in CEA reauthorization.
- Swap Push-Out Rule. Section 716 was added to Dodd-Frank at a late stage in the Senate and was not debated or considered in the House. It forces banks to "push out" certain swap activities into separately capitalized affiliates or subsidiaries. SIFMA urged the Committee to include in CEA reauthorization bipartisan legislation introduced in both the Senate and House (S. 474/H.R. 992) that would amend Section 716, excluding equity and commodity swaps from this provision.
- Swap Execution Facilities (SEFs). Dodd-Frank required certain standardized swaps to be traded on an exchange or a new platform known as a "swap execution facility", or SEF. SIFMA believes that an appropriately flexible definition of SEF is critical for ensuring that SEF trading requirements do not negatively impact the swap markets. The CFTC's final rule, however, requires customers to either trade swaps on SEFs, as if they were traded on exchanges, or to solicit prices by issuing requests for quotes, known as "RFQs," from a minimum of two (during the first year) or three market (after the first year) participants for each swap subject to the SEF trading requirement. This differs from current market practice where asset managers exercise their discretion, consistent with their fiduciary duties to their clients, to determine how widely to broadcast their intended trading strategies. SIFMA urged the Committee to support legislation similar to H.R. 2586 from last Congress, which would not require a minimum number of RFQs.
- Margin Requirements. The CFTC is currently considering rulemaking detailing margin requirements for uncleared swap transactions; in the mean time recommendations on international standards are expected to be published in September and SIFMA has urged the CFTC to re-propose rules for public comment after it has had time to consider those standards. SIFMA has urged regulators to utilize daily variation margin requirements to meet G20 efforts aimed at reducing systemic risk and increasing market stability, while avoiding the imposition of onerous mandatory initial margin requirements, which would drain liquidity and have negative pro-cyclical impacts on markets during times of stress. SIFMA urges the Senate Agriculture Committee to consider SIFMA's comments regarding proposed margin requirements for uncleared swaps in the CEA reauthorization legislation.
- Cost-Benefit Analysis. SIFMA also urged the Committee to support inclusion into CEA authorization of legislation (H.R. 1003) that would improve the consideration by the CFTC of the costs and benefits of its regulations and orders.
Bentsen's full testimony can be found here: www.sifma.org/issues/item.aspx?id=8589944400
