Sanjeev Joshipura of the Commodity Markets Council on Dodd-Frank in 2013

Sanjeev Joshipura, President of Commodity Markets Council, talks about how Dodd-Frank rules will impact his membership base.  Joshipura talks with JLN editor-in-chief Jim Kharouf about the future of the controversial position limit rule, which was vacated by a US District Court on September 28, 2012.  A new position limit rule is expected from the CFTC, which will include a cost-benefit analysis.  CMC is also focused on the CFTC’s reauthorization this year and the continuation of EMIR regulations.  Joshipura also talks about US and EU regulatory harmonization and the challenges facing that goal.

Sutherland Adds Two Energy/Derivatives Partners in Washington, D.C.

CMC partners with Dave McIndoe and Michael Sweeney, of the Energy Working Group, on Dodd-Frank issues.  We are excited to continue our work with them as they join the Sutherland office.

Sutherland Adds Two Energy/Derivatives Partners in Washington, D.C.

Bringing Together Leading Advisers in Post-Dodd-Frank Commodities and Derivatives Regulation

WASHINGTON (Monday, January 23, 2012)—Sutherland Asbill & Brennan LLP today announced that David T. McIndoe and R. Michael Sweeney, Jr., previously co-heads of the Commodities Trading Group at Hunton & Williams LLP, have joined the firm as partners in Sutherland’s Washington, D.C., office.

“David and Michael have played prominent roles in advising the nation’s largest energy and financial companies as these firms have navigated the challenges posed by the financial reforms created under the Dodd-Frank Act. Our new colleagues will bolster and complement Sutherland’s already comprehensive derivatives and energy trading practices,” Sutherland Managing Partner Mark D. Wasserman said.  

CMC and the Dodd-Frank Act: One Year On

It was on July 21, 2010 that the Dodd-Frank Act was signed into law by President Barack Obama. It was of course an extremely wide-ranging Act that regulated the financial system in the United States, but CMC was especially focused on Title VII, the section that deals with derivatives.

For a comprehensive summary of the Act, please refer to this presentation by Davis Polk. For a specific update on Title VII rulemaking, please view the attached presentation from the Katten law firm. For an overview of the past year’s rulemaking on the Act as a whole, please refer to this presentation from Cicero Consulting and this article by K&L Gates. The U.S. Chamber of Commerce, which has been very active during the legislative and rulemaking process, also added to the summaries here, with a nice pictorial graphic depicting the rulemakings required of the various regulatory agencies here.

As you may recall, CMC was heavily involved in the legislative process when the Act was being discussed in Congress, and then in the regulatory process as the CFTC proceeded with its rulemakings. We submitted numerous comment letters, both individually as CMC, and jointly with other trade associations and working groups. Among the topics that our comment letters have covered are:

• Margin requirements
• Swaps data recordkeeping and reporting
• Position limits
• Bona-fide hedging
• End-user exceptions
• Risk management for DCOs
• Treatment of agricultural swaps
• Product and entity definitions
• Market manipulation
• Antidisruptive trade practices
• ….. and many others

Because of the substantive nature of our comments, and the relationships we have developed with the political, media, policy and regulatory folks around town, CMC’s views were actively sought and heard on Capitol Hill and at the CFTC. On some of the above topics, we got what we asked for, whereas on others, the proposed or final rules didn’t incorporate our suggestions.

But today I want to mention three major accomplishments that CMC’s members can justifiably feel a sense of accomplishment about, and which don’t fit neatly into any one rulemaking category but rather are overarching and thematic in nature.

First, CMC has always been a strong and relentless advocate of getting the rules right rather than doing them hastily. As you may know, the CFTC has finally agreed to push back the effective dates for some of their rulemakings from July 16, 2011 to December 31, 2011.

Second, CMC has worked with other trade associations and congressional elected officials and staffers in providing questions to be asked of CFTC Commissioners during hearings; drafting or supporting letters from elected officials to the CFTC advocating our perspectives; and meeting with elected representatives and their staffs to educate them about why certain issues are important to us and elaborating on the rationales behind our points of view. These efforts have yielded success; as you may have noticed in the media, there is a regular stream of news about how Capitol Hill is asking tough questions of the CFTC.

Third, we have maintained the considered opinion that regulation of the swaps markets needs to be done with the global regulatory framework in mind. Excessive regulation in the United States, if not matched by foreign regulators in other jurisdictions such as Europe and Asia, will lead to the loss of capital and jobs from this country. The CFTC has taken heed of our warnings and decided to hold a comprehensive roundtable on this very subject in August.

All said and done, it has been a very busy twelve months for CMC members and staff since the Act’s date of passage. While a lot of work still needs to be done, and there are doubtless several provisions in the Act and its associated rulemakings that we are concerned about, we should pause and take just one moment to pat ourselves on the back for what we have accomplished working together.

To all our members and allies: A big “Thank You”! And we continue onward and upward!

CMC Covers Wetjen’s Confirmation Hearing

In a carefully orchestrated hearing this morning, the Senate Ag Committee took up the confirmation of Mark Wetjen to the Commodity Futures Trading Commission.  Slated to replace out-going Commissioner Mike Dunn, Wetjen played up his ag background with nostalgic references to his time listening to market reports on his family farm in Iowa.

More on substance, he expressed his belief that at this “critical” time the Commission must “hew closely” to the statutory directives in the Dodd-Frank Act.  He also hinted that balancing the pressures to get rulemaking done quickly but correctly will be difficult.  “I think the more quickly the Commission can act the better because it is going to provide some certainty to market participants and I know the market prefers that,” Wetjen told lawmakers. “But I think more important to them is making sure the rules are right.”

To view the hearing, click here.

CMC Discusses Dodd-Frank With Lead Financial Policy Analyst

With the Dodd-Frank one year anniversary, CMC sat down with one of DC’s lead financial policy analysts from Capital Alpha Partners.  The head of the group, spoke to CMC members at our 2009 annual meeting.

In Case You Missed It…5 Articles To Read

To mark the first anniversary of Dodd-Frank, here are some key insights.

1.   Atlas Shrugged: Will Regulators? — Funding SEC and CFTC

Meanwhile, SEC and CFTC officials have held more than 1,300 meetings with outside firms and individuals to discuss the Dodd-Frank law since it was passed, according to a tally by law firm Davis Polk & Wardwell LLP. So far, the SEC has missed more than three-quarters of its Dodd-Frank rule-making deadlines; the CFTC has missed 88% of its deadlines, the law firm said.Geithner steps to the defense of Dodd-Frank

Two and a half years ago, with our country on the edge of a second Great Depression, we met with the president in the White House to discuss whether to move in those first months of his administration to legislate fundamental reform of the financial system—or wait until we had put the crisis behind us.

2.   A comprehensive summary of Dodd-Frank

3.   CMC joined with our ag colleagues to push for retention of key Census Bureau reports.

          Agricultural Groups Scramble to Save Critical Reports

CHICAGO (Dow Jones)–Producers of cotton, wheat flour and livestock feed are searching for ways to avoid losing Census Bureau reports critical to their industries that are slated to be discontinued due to budget cuts.

A coalition of agricultural trade associations is slated to meet Wednesday with the top economist of the U.S Department of Agriculture to discuss attempts to save the reports issued by the Census Bureau. Time is running out to find a solution, as some of the reports will be stopped after next month.

4.   CMC’s work on swap rules related to portfolio hedging with the Energy Working, jointly known as the Commercial Alliance, was highlighted in a recent Platts article:  Energy group wants CFTC to take a larger view for swaps rules.

According to the group’s letter, basing new rules on each swap transaction, rather than on a company’s overall portfolio, is “flawed” and would “degrade risk management best practices in swap markets.” For example, the group highlighted a utility company whose hedging portfolio may be long for physical generation, but short physical load obligations. The group argued that the CFTC should view the overall portfolio of hedging as the basis for determining if the company’s hedging is speculative or a legitimate hedging strategy, rather than making this determination based on an individual swap.

“If a transaction-by-transaction approach is taken to its logical end, the utility would be required to put on an individual hedge for each of its customer accounts, of which there might be millions,” the group wrote.

5.   See Brian Scheid’s Platts article below.

CFTC swaps trading plan may stifle market-traders

* CFTC wants quote request to reach at least 5 groups

* Signal would move prices, scare off liquidity-banks

* SEC’s model would allow for more discretion-banks

* More time needed to phase in new SEFs rules-NFA
(Updates with additional comments and background on
international regulations)

By Roberta Rampton

WASHINGTON, March 8 (Reuters) – The U.S. futures regulator
risks stifling liquidity in swaps market by requiring traders
to ask for quotes from at least five market participants, major
banks said in a regulatory comment period that ends on
Tuesday.

To shine light on the opaque over-the-counter derivatives
market, the Commodity Futures Trading Commission will require
many swaps to trade on new “swap execution facilities,” or
SEFs, one of the most contentious parts of the Dodd-Frank
financial reform law.

The CFTC has specified that “block trades” won’t have to
move through SEFs. But the CFTC sets the bar too high for block
trades, and few will qualify for the exemption, said Dexter
Senft, a managing director at Morgan Stanley (MS.N).

That means many large swaps would have to be executed on a
SEF, broadcast to at least five other traders, and reported
immediately after trading, forcing bid-ask spreads wider to
account for the market risk — or prompting some customers to
avoid the trades altogether, Senft said.

“To the extent that a customer’s intention to execute a
large trade is ‘signaled’ to more than one market participant,
the price of the relevant instrument will likely move adversely
to the customer,” Senft said.

Continue reading here.

Volcker may get the last laugh

Roy C Smith

07 Mar 2011

The Dodd-Frank regulatory reform act in the US gives banks plenty of time to adjust to its Volcker Rule, the disallowance of proprietary trading.

The law itself provides them with lots of wiggle-room, with implementation left to the Financial Stability Oversight Council, which recently released a study it was required to make about the new rules.

Next, the FSOC will have to finalise the rules (expected in June) and circulate them for discussion and push-back from lobbyists. Then there will be a lengthy period allowed for the banks to put them into effect. It could all take years.

The FSOC study acknowledges that the distinction between “permissible” and “impermissible” trading may be difficult to make. Market-making, for example, is allowed under Dodd-Frank. This is defined by the banks as trading with or on behalf of clients.

Continue reading here.

US CFTC “out of step” with other regulators-Sommers

 

Mon Mar 7, 2011 8:00pm GMT

 

* CFTC needs to quantify costs of its new rules – Sommers

* Swap execution rule goes beyond SEC, EU versions

* Position limit plan more extensive than EU proposal

By Roberta Rampton

WASHINGTON, March 7 (Reuters) – The U.S. futures regulator is going too far and too fast toward pushing swaps onto new trading platforms, one of its top officials said on Monday.

The Commodity Futures Trading Commission’s proposed rule on swap execution facilities, which is open for public comment until Tuesday, is inconsistent with proposals by the Securities and Exchange Commission and international regulators, said Jill Sommers, a CFTC commissioner.

“One of my primary concerns is that the CFTC is moving out of step in time, substance, or both with the SEC and the rest of the world in implementing trade execution requirements for standardized swaps,” Sommers said in a speech to the Institute of International Bankers.

The Dodd-Frank financial reform law requires more over-the-counter swaps to trade on exchanges or new swap execution facilities, or SEFs, to increase transparency in the formerly opaque market.

The CFTC has proposed that new SEFs send requests-for-quotes on trades to at least five swap dealers, while the SEC would allow a request to go to a single dealer, depending on the customer’s wishes.

The European Commission is still in the early stages of considering a proposal that would allow for single-dealer platforms, a “fundamentally different” model than the CFTC’s proposal.

“I support the more flexible approach being considered elsewhere,” said Sommers, a Republican commissioner who voted against the proposal when it was first unveiled.

Sommers said she hopes the CFTC will adopt a more flexible regulation. After the comment period ends, the agency will consider whether changes are needed, and commissioners will need to vote again to finalize the plan.

Sommers, who has objected to a number of rules proposed by the CFTC, also said the agency’s plan for position limits for energy, metals and agricultural commodities goes beyond what international regulators are considering.

The European Commission has proposed giving national regulators in the European Union the option of setting position limits, but may only require the limits for farm products.

A plan for ownership restrictions for clearinghouses and SEFs also go beyond European proposals, and “may do more harm than good,” Sommers said.

The CFTC needs to do a better job analyzing the costs and benefits of their proposed rules, Sommers said.

“The proposals we have issued thus far contain cursory, boilerplate cost-benefit analysis sections in which we have not attempted to quantify the costs,” she said.

“We owe the American public more than the absolute minimum,” she said.

CFTC Vote on Trading Curbs Stalls

Wall Street Journal

By JEFFREY SPARSHOTT

December 17, 2010

WASHINGTON—U.S. regulators Thursday released a broad proposal that seeks to curb speculative trading in oil, metals and other commodities, but held off voting on it in another setback for efforts to put in place Congress’s Wall Street overhaul.

CFTC Commissioner Bart Chilton asked how traders would be treated while the rules are being phased in.

The new rules would limit the size of the positions traders could take in the commodities. They respond in part to the spike in oil prices above $140 a barrel in the summer of 2008, which some critics blamed on regulators’ alleged failure to keep a tighter leash on speculation.

Top commodities regulator Gary Gensler has been pushing for position limits since last year, and the Dodd-Frank financial law passed in July authorizes his Commodity Futures Trading Commission to act on the issue.

The commission was nearly ready to do so Thursday, as the five-member body met with a draft of the rules before it. But Mr. Gensler had cold feet at the last moment after commissioners expressed concern, and put off a vote on a formal proposal, probably until January. After a public-comment period, a second vote would be needed to make the proposal final.

“I think it’s just appropriate to let this one ripen a little bit more,” Mr. Gensler said.

The delay highlighted concerns among some, including Republicans in Congress, that the CFTC isn’t taking enough care as it writes rules to transform commodities markets at breakneck speed to meet deadlines under the Dodd-Frank law.

The law gives broad new powers to the CFTC, sparking a rolling battle with Wall Street about issues that will shape markets for many years to come.

Continue reading here.