Statements for the record on each rule:
Governance:
I support the proposed rule on further governance and conflicts of interest requirements for derivatives clearing organizations (DCOs), designated contract markets (DCMs) and swap execution facilities (SEFs). The proposed rule complements the conflicts of interest provisions that the Commission proposed on October 1st by keeping regulators up to date about the composition of boards, board committees and ownership, promoting transparency in decision-making and ensuring limitations on use or disclosure of non-public information. The proposed rule also provides guidance to industry and the public on appropriate minimum governance fitness standards for DCOs and DCMs, as well as the manner in which market participants must be heard or included in DCO or DCM governance arrangements. The proposed rule would enhance the integrity of clearing and trading and would increase public trust in the facilities on which such important activities occur.
End-User Exception
I support the proposed rule on the end-user exception. Congress decided that non-financial entities hedging or mitigating commercial risk will have a choice of whether to submit their transactions to a clearinghouse.
In essence, the proposal says that, if a company is using a swap to hedge an asset, liability, input or service that it currently has or uses or anticipates having or using, it would qualify for the end-user exception. In addition, the proposal says that if the swap meets generally accepted accounting principles as a hedge or if it used for bona fide hedging, the transaction would qualify for the end-user exception. These non-financial entities would be able to hedge interest rate risk, currency risk, physical commodity risk or other types of risk.
The proposed rule does, however, say that if an entity is taking a position to speculate, the transaction would not qualify for the end-user exception.
I also support the series of questions included in the proposal regarding small financial institutions. In the Dodd-Frank Act, Congress directed the commission to consider possible exemptions for small financial institutions. I look forward to hearing from the public on their views on this and what conditions would be appropriate for such exemptions, if granted.
Interim Final Rule for Reporting of Post-Enactment “Transition” Swaps
I support the interim final rulemaking regarding the reporting timetable for swaps entered into after the date of enactment of the Dodd-Frank Act but prior to the effective date of swap data reporting rules, or “transition” swaps. The interim final rule is intended to ensure that data and information related to those transition swaps will be preserved until reporting to swap data repositories or regulators can occur. The rule is intended to prevent a substantial loss of data on transition swaps and to assist the Commission in performing its oversight functions under the Commodity Exchange Act. This proposal would permit entities to save data as they currently do. Thus, many of the details of our future data rules would only be effective prospectively.
External Business Conduct Standards
I support the proposed rulemaking to establish business conduct standards for swap dealers and major swap participants in their dealings with counterparties. Today’s proposal implements important new authorities that Congress granted the Commission to establish and enforce robust sales practices in the swap markets. The proposed rule will level the playing field and bring needed transparency. It will strengthen confidence in the market to benefit hedgers and other market participants.
The proposed rule would prohibit fraud and certain abusive practices. It also would implement requirements for swap dealers and major swap participants to deal fairly with customers, provide balanced communications and disclose conflicts of interest and material incentives before entering into a swap. The rule also would implement the Dodd-Frank heightened duties on swap dealers and major swap participants when they deal with certain entities, such as pension plans, governmental entities and endowments. In addition, the proposed rule includes restrictions on certain political contributions to municipal officials by swap dealers, known as “pay to play” prohibitions.
The proposed rule is intended to ensure that swaps customers get fair treatment in the execution of their transactions. It would require swap dealer to disclose what access they have to swap execution facilities and designated contract markets. The rule also requires a swap dealer to execute transactions on terms that have a “reasonable relationship” to the market. The proposed rule provides flexibility to accommodate developments in the swaps markets while also protecting customers.
