CFTC Advances Derivatives Reform

by Glen Shapiro, LawAndTax-News.com, New York

09 September 2010

The United States’ Commodity Futures Trading Commission (CFTC) has announced that it will begin publishing a list of all meetings that it has with outside organizations regarding the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Wall Street Reform Act requires over-the-counter (OTC) derivatives dealers to be strongly regulated for the first time, particularly with regard to capital and margin requirements. OTC derivatives will be required to be traded on open platforms and be submitted for clearing to central counterparties. The CFTC, to which was given this regulatory responsibility, has recognized that a significant number of rules will need to be written and implemented.

CFTC Chairman, Gary Gensler, has confirmed that “we have organized around 30 areas where we believe rules will be necessary. Some of these areas will require only one rule, while others may require more. We will be required to complete these rules generally in 360 days, though we will be required to complete some of them in 90, 180 or 270 days.”

He also recently confirmed that “the CFTC is committed to promoting both market and agency transparency. As we implement the Dodd-Frank Act, we will make meetings that we have with outside organizations regarding the rule-writing process public. We also will continue publishing materials provided to the CFTC by outside organizations.”

Interested parties are being encouraged to provide input on the rule-writing process and, since mid-July when the Act was passed, the CFTC has held meetings with a wide range of Wall Street institutions and hedge funds that participate in the OTC derivatives market, including industrial groups, such as the major oil groups, that use derivatives in their businesses, and financial market associations, state regulators and exchanges.

The matters under discussion have included technical matters, such as the definitions to be used within the rules, registration requirements, record-keeping and core rulemaking, interpretation and guidance, while other market participants have spoken of their own views concerning the breadth of regulation required.

The CFTC has also been asked, for example, how it would address transitioning to the new rules once they have been developed, and how it was coordinating with foreign regulators to ensure consistency. Gensler has noted that the Act provided for a minimum 60-day transition period, and that CFTC negotiators were putting an emphasis on international harmonization.

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