Tamara Hinton, 202.225.0184
Good morning, and thank you all for being here. Today’s hearing will focus on the Commodity Futures Trading Commission (CFTC) agenda for the upcoming year. I’d like to thank Chairman Gensler for joining us to share his perspective.
This is a timely hearing, as the CFTC is facing a number of issues of concern to our constituents.
First and foremost on the CFTC’s agenda for the coming year must be its investigation into the collapse of MF Global and its missing customer funds. Thousands of customers have yet to receive nearly 30 percent of the funds that MF Global should have held in segregated accounts.
While I commend the Trustee for working quickly to trace the thousands of complex transactions that occurred during MF Global’s final days, the fact remains that many customers have not yet been made whole.
Farmers and ranchers across the country continue to face hardships because of their missing funds, and have lost confidence in the futures system.
This raises several key questions about customer protections in place, and the CFTC’s role in futures markets.
Although the CFTC has gained new authorities over the swaps market under the Dodd-Frank Act, the MF Global collapse demonstrates the importance of CFTC’s oversight responsibilities in futures markets.
In addition to our concerns about MF Global customer funds, we also must address the Dodd-Frank rulemaking process. As the CFTC nears the half-way mark in completing the dozens of regulations required by Dodd-Frank, I remain concerned about the breadth of the proposals.
Instead of focusing resources on the entities and activities that pose the most significant risks to our financial system, the CFTC is casting a wide net that could needlessly catch end-users.
For example, for months we have been assured by Chairman Gensler that the swap dealer definition would not result in unnecessary registration of end-users, which Congress never intended to fall within the swap dealer category.
However, as the Commission neared consideration of the rule last week, end-users were frantically seeking clarification that their hedging activities would not be classified as swap dealing.
This doesn’t make sense, because Congress never intended for hedging to be considered swap dealing.
Additionally, the CFTC has yet to propose a rule that will clarify the scope of its new regulations for activities that occur outside our borders—what we refer to as extra-territoriality.
There is a long-standing precedent by both the CFTC and the prudential regulators to defer to foreign regulatory authorities in matters concerning foreign entities and transactions.
Expanding the reach of Dodd-Frank into activities conducted outside our borders not only ignores principles of international law, but it spreads our agencies and resources too thin. It also threatens the international coordination required for global financial reform as envisioned by the G20.
Additionally, the lack of clarification on the territorial scope of regulations has made it incredibly difficult for market participants to prepare for compliance.
The confusion over the swap dealer definition and the foreign scope of regulations are just two examples of the many issues on which the CFTC has failed to deliver concrete answers or policy solutions. Our constituents need more than empty reassurances.
Most of these concerns are rooted in an issue that we have discussed for more than a year now—the need for strong and robust economic analysis.
The Economist recently highlighted the Obama administration’s tendency to overstate the benefits of regulation while underestimating the costs. That has certainly been apparent in the Dodd-Frank rulemaking.
At a public meeting recently, CFTC staffers admitted they simply had not calculated the costs and benefits of a rule governing internal business conduct standards. They could not provide substantive analysis for the conclusions they drew about how that rule would impact our economy. That’s unacceptable.
Even if the CFTC was attempting to conduct economic analyses of Dodd-Frank regulations, it would be difficult given the lack of clarity about which organizations will be affected by each rule.
Making policy without regard for the economic consequences is a luxury we cannot afford even in the strongest economy. We certainly cannot afford it now.
I look forward to hearing Chairman Gensler’s agenda for 2012, but more than that, I look forward to a time when we can guarantee our constituents that they will not be overburdened by regulations that were not intended for them.