CMC Attends IIB Event with Asst. Treasury Secretary Lago

Earlier this week, CMC attended an event hosted by the Institute of International Bankers (IIB) featuring the US Treasury’s Assistant Secretary of International Markets and Development, Marisa Lago.  Ms. Lago spoke on a variety of topics, including derivatives, within the realm of global financial regulation.  She said that international coordination on derivatives regulation is very important to ensure that no jurisdiction regulates these instruments in a lax manner.  The US government and regulators, she said, are well on schedule for completing all their derivatives related rules by the end of 2012.

Ms. Lago informed attendees that the Financial Stability Board (FSB) has taken up Treasury Secretary Geithner’s proposal for international standards on margin requirements on uncleared derivatives transactions.  This is a recent agenda to the G20 agenda.  She also said that Secretary Geithner has made a Legal Identity Identifier (LII) proposal to the FSB to uniquely identify each individual derivatives transaction for recordkeeping, reporting and auditing purposes.  Ms. Lago claimed that this proposal has private sector support and is being discussed by the FSB.

CMC Attends IIF Annual Meeting

Over this past weekend, CMC attended the annual meeting of the Institute of International Finance (IIF) as a special invitee, having contributed to that organization’s position paper on derivatives regulatory policy. The paper, in which CMC’s help has been graciously and formally acknowledged, was on prominent display at the meeting, and many of the over 1,000 attendees took away copies (the IIF ran out of copies despite printing several hundreds). The stimulating panel discussions at the meeting were both wide and deep in their content, covering various aspects of global financial reform, monetary policy and fiscal policy. In addition, the venue also provided an excellent networking opportunity for CMC to liaise with senior international financial services executives and government officials. Being associated with the IIF is a positive for CMC, both because the IIF is expanding its commodity derivatives policy coverage and because it is a well-known institution with a broad reach that is playing an instrumental role in resolving the European debt crises.

Gensler Fights On Two Fronts

While he has probably grown somewhat accustomed to the external attacks from lawmakers, trade groups and business, CFTC Chairman Gary Gensler finds himself also fighting off attacks within the Commission.  The discontent now reaches from CFTC staff to the Commissioners.  Christopher Doering in his Reuters’ article captures the current sentiment.

The discontent in some ways stems from the top. CFTC commissioners have openly disagreed on what the rules should look like, and the best way to put them into effect. Increasingly, some commissioners have spoken out about being left in the dark about what is going on at their own agency.

It now appears to be trickling down to lawyers, economists and others tasked with finishing the rules on which they have been working nonstop for nearly a year, and have at least six more months to go.

Jill Sommers, a Republican CFTC commissioner who has opposed a number of the rules, told Reuters on Friday she was frustrated by a lack of communication to agency commissioners about things going on at the CFTC.  “It’s frustrating that we find things out third hand,” Sommers said. “I understand there are a lot of different things being juggled and we have limited resources at the commission, so I’m sensitive to that, but I would guess there is a better way to keep us all on the same page.”

What many knew was a growing sense of discord culminated in a very public way around the CFTC’s position limit rulemaking.  The draft final rule was leaked and whistleblower complaints were also broadcast.  All of this at a time when the Commission is tasked with finalizing some of its most important rulemakings: position limits, product and entity definitions, capital and margin requirements, etc.  Again, Christopher Doering in his Reuters’ article, outlines the challenges facing Gensler, but also correctly notes that Gensler sought out many of them.

Gensler quickly became a go-to guy for Congress after being sworn in May 2009.  Lawmakers and staffers at the time lauded his ability to explain a complicated subject clearly and simply as they embarked on the Dodd-Frank financial reform legislation in the wake of the 2008 meltdown on Wall Street.

Gensler worked the halls of Congress and was a fixture on financial television as he pushed for a strengthening of the CFTC’s regulatory powers. When the reform bill was before the Senate Agriculture Committee, Gensler had a front-row seat.

The tide has turned, however.

Republicans, who are chafing at new regulations in general, are particularly vocal in their criticisms of the CFTC. Democrats, already concerned the agency is not being tough enough on Wall Street and anxious for action to crack down on speculators they blame for driving up food and fuel prices, are worried the agency may be watering down the rules.

Will Singapore Capitalize On Regulatory Arbitrage Opportunities?

Conventional wisdom, and some anecdotal evidence, suggested OTC markets would shift to Asia, and Singapore in particular.  In a recent Business Times article, Ravi Menon, the managing director of the Monetary Authority of Singapore (MAS), tried to put those claims to rest.

‘In recent months, there has been a notion in some quarters that as tighter regulations are proposed for OTC derivatives in the US and EU, activity will flow to centres in Asia that are purposefully less heavily regulated,’ Ravi Menon said during a regulation conference hosted by Thomson Reuters.

‘This is mistaken. Leading centres in Asia like Singapore, Hong Kong and Australia are very much part of the G-20 process and initiatives, and there is no room for regulatory arbitrage,’ he added.

However, Mr. Menon acknowledged that Singapore was still deliberating on the appropriate level of centralized clearing and emphasized the risks to an overly broad requirement.

‘Comprehensive implementation of centralized clearing is not without challenge, we need to determine carefully the products for mandatory central clearing, particularly those employed by commercial end users,’ he said.

‘The cost of clearing can potentially increase their hedging cost, cause a cut back in needed investment or an increase in unhedged positions.’

Mr. Menon’s comments still leave open the question . . . Will Singapore capitalize on regulatory arbitrage opportunities?

Senior Senate Agriculture Committee Staffer Addresses CMC Members on Policy Call

Gregg Doud, Senior Professional Staff at the Senate Agriculture Committee Republicans, addressed CMC members on our policy call yesterday.  He spoke mainly about financial regulatory reform pertaining to derivatives, but also briefly discussed budgetary matters, the farm bill, congressional politics, and Senate confirmation votes.  Gregg provided a comprehensive briefing on the aforementioned topics, and CMC members had the opportunity to directly ask him several questions.

Gregg Doud to Participate on CMC’s Policy Call

Gregg Doud, Senior Professional Staff of the Senate Ag Committee will be participating on CMC’s weekly Policy Call tomorrow, Tuesday, September 27th.  Read his biography below.

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CMC Attends Event with European Union Commissioner Olli Rehn

CMC was at a meeting recently with Olli Rehn, who serves as the EU Commissioner on Economic and Monetary Affairs.  Commissioner Rehn spoke about the current economic situation in Europe, with an emphasis on Greek, Ireland, Portugal, Spain and Italy, the countries that face the most severe risks to their public finances and financial stability.  He does not foresee Europe entering a double-dip recession, although the recovery from the financial crisis has proven slow and bumpy.  He expressed confidence that Ireland is on its way to recovery and that Portugal is making progress in the right direction.  He admitted, however, that he Greek situation is altogether more complicated and problematic.  He concluded with a reference to American history and former Treasury Secretary Alexander Hamilton, saying that Europe is facing a “Hamiltonian moment” and it needs to make a quantum leap in economic integration.

CMC asked Commissioner Rehn about his perception on the potential threats to central bank independence from the left and the right of the American political spectrum, but he demurred, pleading ignorance of the situation, perhaps not wishing to involve himself in controversial matters on this side of the Atlantic.