Commissioner Scott O’Malia
Today this commission will consider its tenth series of proposed rulemakings under the Dodd-Frank Act. It has become a familiar refrain in these open meetings to hear our Chairman point out the ever growing number of proposed regulations that we have put forward for comment or adopted as final. I continue to be grateful for the hard work that the staff here at the Commission is doing to produce all of these proposals at a punishing pace, including Sarah Josephson, John Lawton and their team and Don Heitman, Ryne Miller and their team, who will be presenting new proposals today.
Mr. Chairman, Tuesday, the President put forward an Executive Order titled Improving Regulation and Regulatory Review. I agree with the high standards the President has directed federal agencies to comply with, including improved cost/benefit evaluations, encouraging innovative alternatives, and ensuring the rules are tailored to impose the least costs. I imagine the President proposed these rules specifically to provide some direction to the implementation of the Dodd-Frank Rule making process, until staff informed me that this Executive Order does not apply to independent regulatory agencies, including the CFTC. I believe we should make it Commission policy to implement this executive order to all of our rules.
I’ll be asking teams what steps they’ve taken to make sure that, at the very least we’re complying with the spirit of the executive order. Do we have the technology we need to make sure we propose to use only the best, most innovative and least burdensome tools for achieving our regulatory ends? Have we put forward definitions proposals in a timely fashion that promote predictability and reduce uncertainty for the markets we regulate? Considering the staggering, ever mounting likely costs of complying with all of these regulations, have we imposed the least burden we can, taking into account the costs of cumulative regulations?
I urge the Commission to adopt those standards as policy.
Agricultural Swaps and Commodity Options
I am pleased that we have before us a proposed rule that treats agricultural swaps and commodity options in the same manner as it treats all other swaps. I believe this treatment will continue to provide commercial end-users with the flexibility they need to implement a customized and cost effective risk management strategy to hedge against price volatility. This seems to be in keeping with Tuesday’s executive order.
With that said, I am concerned that this rulemaking does not provide as much clarity and certainty as it should. Instead of clarifying what agricultural contracts are eligible for our forward exclusion, today’s proposal declines to answer whether certain cash contracts based on agricultural commodities are swaps and subject to regulation or if they are forwards and therefore, excluded from regulation. We should not hesitate to make this type of important decision.
Also, many commenters asked this Commission to address whether agricultural cooperatives would be exempted from the definition of swap dealer, but this rulemaking does not address that issue. In order to fully comment on that issue, I encourage the submission of comments on the swap dealer rulemaking. In that same light, many commenters asked this Commission to permit agricultural cooperatives that enter into swaps with their own members to be eligible for the end-user exemption. This issue is also not a part of this rulemaking; it is addressed in the end-user rulemaking and comments should be submitted as appropriate. With so many overlapping rulemakings, it is understandable that there may be some confusion about how all of these new requirements are going to work together, but at the very least, it should be clear who is subject to the requirements in our regulations.
Swap Documentation Requirements
The second proposed rulemaking before us today seeks to put swap dealers and major swap participants on notice that in the event of a counterparty default, or when there is even the danger of a default, that the ability of parties to exercise certain rights under swap agreements may be stayed by Title II of the Dodd-Frank Act or by the Federal Deposit Insurance Act (FDIA). It may have been the goal of this rulemaking to reduce uncertainty and promote predictability, but unfortunately this rulemaking results in more confusion and questions.
While neither Title II nor FDIA provides a specific role for the CFTC when the FDIC exercises its authorities to address defaulting financial entities, we have been asked to use our authorities in Title VII regarding swap documentation to prop up the flawed processes in Title II and FDIA. If those laws were clear there would be no need for the CFTC to put forward the proposal before us today, which leads me to believe the FDIC apparently has some concern regarding its own authority. I would also like to have a better understanding of the CFTC’s role in overseeing our registrants under this new FDIC led resolution process.
With the numerous regulations that we are required to effectuate under the Dodd-Frank Act, I don’t believe it’s in our best interest to adopt unnecessary requirements under the guise of our Title VII authorities that clearly exceed the already broad statutory authority Congress decided to provide the FDIC in Title II or in FDIA.
I believe this rulemaking would benefit from heeding the direction in the President’s Executive Order Section 2 (c) – Public participation. This paragraph directs agencies to consult with the affected individuals before issuing a notice of proposed rulemaking. This vast new resolution authority could have significant impact on bilateral deals, which I don’t believe have been properly considered.
In closing, I recognize that the CFTC’s staff is working around the clock to put forward a staggering number of rulemaking proposals in a very short period of time, and I am grateful for their efforts. It’s my hope that as the Commission works towards trying to put regulations in place by the deadlines included in the Dodd Frank Act, that we don’t put quantity above quality. Towards that end, let’s commit to doing our best to make sure that this agency is complying with the full spirit and letter of the recent Executive Order.
