Opening Statements

Chairman Massad, thank you for joining us today.  Today’s hearing is the first of what I hope will be many productive engagements between you, your staff, your fellow commissioners, and the members of this committee.

In 2015, the CFTC’s response to the financial crisis is entering a new phase—shifting from the breakneck race to draft rules to the more deliberative implementation of the rules.  It is inevitable that Congress and the Commission made mistakes along the way, and now it is time for us to step back and recognize improvements that can be made.

Mr. Chairman, I am pleased that you have reexamined some of the prior rulemakings to ensure that end-users are not unduly burdened by these new rules.  Your proposal on volumetric optionality exemptions, record keeping requirements, and the residual interest deadline are appreciated.  While we may not see eye-to-eye on all of the details, the proposals meaningfully move the needle in the right direction.

While continuing our longstanding focus on protecting end-users, this Committee will examine several broader issues this year.  Specifically, we will look at the swaps market under the new regulations, the position limits rulemaking and the bona fide hedge exemption, the resolution of the many cross-border jurisdictional issues that have come up, and the collection and usage of the tremendous volume of new data flowing into the Commission.

Commissioner Giancarlo recently authored a comprehensive whitepaper on the swap space and the SEF rules, in particular.  As someone with significant experience in that area, I appreciate his insight into these markets.  Building new swaps exchanges and mandating centralized clearing and margining when feasible is at the heart of the reforms in Title VII of Dodd-Frank.  But, it is important that changes to swaps markets recognize the gradual growth of these financial instruments. 

In a similar vein, as the Commission contemplates its position limits rule, it is not enough to regulate simply because the Commission has the power.  The law directs the Commission to set new position limits “as appropriate” and “as the Commission finds are necessary” to curtail “excessive speculation.”

As the Commission moves forward, its proposed rule must first explain whether or not price movements in commodities are based on reasonable market forces and can be justified by facts, and then explain how position limits will diminish, eliminate, or prevent market disruptions.  Big price swings – even those we’ve seen in the oil markets over the past decade – are not prima facie evidence for the appropriateness of and need for position limits.

The Commodity Exchange Act also includes an expansive definition of bona fide hedging which specifically includes anticipatory hedging needs.  It is important that this exemption remain broad enough that legitimate commercial hedging activity can be sheltered from any limits the Commission may demonstrate are appropriate.

On cross border issues, it appears that there has been some tentative progress in reducing the ongoing tension with foreign regulators over how we apply national rules across international borders.  Trust and mutual respect is a first step towards solving these difficult issues, so this is welcome news.  However, it is important the CFTC and international regulators finish this important work and rebuild the fractured swaps markets.

Finally, over the past few years, numerous witnesses have testified to the Commission’s difficulty in collecting and using the tremendous volume of new data required by Dodd-Frank.  This issue is critical to the functioning of swaps markets.  Data reporting rules impose a burden on market participants and those burdens cannot be in vain.  I know that the Commission is working to address this issue and I look forward to an update on this progress. 

In my view, these four issues present the biggest challenges to implementing Title VII with the least amount of additional disruption as possible.  In the coming months, we’ll be taking up the reauthorization of the CFTC and the Committee will look for broad input about how we can tailor and refine the law, to ensure the marketplace works for all participants.  As we do so, Mr. Chairman, your perspective will be invaluable to our legislative process.  While we won’t agree on everything, we will work with you and your team to find common ground on improvements to the CEA.

Mr. Chairman, I look forward to working with you during the time we are privileged to serve together.  Again, thank you for appearing before this committee to share your views with us.  We appreciate your time today.