Opening Statements

Remarks as prepared for delivery:

Mr. Chairman, thank you for convening this hearing. You and I share a deep concern over the potential absence of international harmonization work between the CFTC and their global counterparts.

The main focus of today’s hearing is on the impact of Brexit in US derivatives markets. But, we cannot talk about that without discussing the European Commission’s potential divergence from our hard-fought 2016 Equivalence Agreement. For years, this committee has been focused on the importance of harmonizing our international response to the financial crisis.

When Chairman Gensler sought to impose the US swap dealer rules around the world, we pushed back strongly, because we rightly believed that overlapping rules would make it difficult or impossible for global risk markets to function as end-users and other market participants need them to.

Today, we find ourselves in a similar place, except instead of making common cause with our European colleagues, we’re having to remind them of the principles I thought we agreed on. Implementing EMIR 2.2 in a way that would disrupt our existing equivalence agreement would trample on our previously shared principles.

Just like in 2011 and 2012, regulators are playing a dangerous game, trying to expand their reach into places that are already well regulated. Such an effort, just as it was going to then, will result in inevitable conflicts and legal uncertainty for market participants. When there is uncertainty, there will be less liquidity and more risk for those who drive our economy.

We need our regulators to work together to preserve our open, global markets, while building the compatible standards that will protect market participants and encourage financial stability. Open markets and financial stability are complimentary goals.

Regulators should seek to implement rules that promote both.

Our US prudential regulators could also remember this lesson from time to time. The capital standard and the margin rules that they have been working on are both out of step with global norms and do not promote access to clearing or sound hedging practices.

The capital rule’s treatment of initial margin and unmargined commodity derivatives both penalize end users, who will see reductions in access to cleared market intermediaries and increases in costs for utilizing their rights to opt out of the margin requirements.

The prudential regulators’ insistence on requiring margin for internal swaps that transfer risk within the same bank holding company presents similar problems for end users. Ultimately, the costs of moving risk within a bank to the place it is most economical is a cost of providing a service to a client. If we make that service more expensive, it won’t be the bank that pays, it will be the banks clients who rely on the service. They will either pay in money or pay in loss of access.

These requirements, in both rules, run contrary to the spirit and intent of our commitments to end users when we enacted the law.

I am happy to note that our commissioners are examining changes that will improve coordination and harmonization. I hope that their efforts bear fruit and our European colleagues will join them.

Thank you, Mr. Chairman.