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.


CFTC: Remarks to the Institute of International Bankers Annual Washington Conference (Speech by Commissioner Jill Sommers)

CFTC Commissioner Jill Sommers delivered a speech at the Institute of International Bankers (IIB) meeting in Washington, DC recently. While emphasizing the need for global regulatory coordination, mitigating systemic risk, preventing fraud and improving market transparency, she also cautioned the CFTC against assuming extraterritorial international jurisdiction. Additionally, she highlighted the need for a robust cost-benefit analysis in rulemaking, which she says the CFTC isn’t doing, and she urged the IIB and other groups to continue submitting their comments to the CFTC.

Read Commissioner Sommers’ remarks below.

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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.