U.S. Senator Pat Roberts (R-Kan.), Ranking Member of the Senate Committee on Agriculture, Nutrition and Forestry which is tasked with oversight of the Commodity Futures Trading Commission (CFTC), today released the following statement on the implementation of the CFTC's new "Swaps Definitions" rules:
"On the heels of the federal district court's decision to block the CFTC proposed "position limits' rule on trades of derivatives and swaps, we brace ourselves for the results of new regulations meant to bring transparency to the market that have in reality brought confusion, concern and do not inspire confidence in the CFTC's leadership. When the congress resumes session, the Senate Agriculture Committee should hold hearings to examine the consequences," Roberts said.
"Unfortunately, it's my view that CFTC Chairman Gary Gensler is using his newfound power to unilaterally impose his will on financial markets. Most distressing is that while Mr. Gensler has tried to create his regulatory agenda, he and the CFTC have miserably failed in their oversight of existing regulations and market participants. First they missed MF Global and less than a year later we had the Peregrine debacle.
"Despite these clear oversight and investigatory failures, the Chairman finds it necessary to continue to expand the regulatory scope of the CFTC beyond what congress intended using Dodd-Frank as cover. In July, the CFTC triggered a self-imposed 60-day clock for, as Chairman Gensler put it, "light to begin to shine on the swaps market for the first time.'
"As these regulations to enter into force, commissioners complain that they are kept out of the loop, that the agency has been too aggressive, inconsistent and in a rush to roll out rules that in the end, do not fit together, do not work, and do not provide confidence in the marketplace. The federal court ruling on position limits is proof these concerns are justified.
"Not surprisingly, the CFTC has unnecessarily riled numerous overseas regulators with "interpretive guidance' that has no actual force of law. Letters from foreign regulators are flowing in to register their concerns.
"In the two years since Dodd-Frank became law, Gensler's CFTC has yet to provide any plan or timeline for how it intends to coordinate over 30 rules involving thousands of pages of new regulations while the Securities Exchange Commission (SEC) has a holistic plan. Financial industry participants who work both sides of this regulatory street indicate that the animosity between the SEC and CFTC is palpable.
"The CFTC Chairman's regulations-looking-for-a-problem method of rule writing is creating confusion and costing businesses a fortune in compliance costs. When confronted about the problems, the Chairman's office responds by issuing "no action' letters, without input from other commissioners. Was this the plan all along create dozens of new regulations merely to exempt most of the entities they would affect?
"During his confirmation hearing Chairman Gensler said this about the relatively few swaps dealers that would need to be regulated: "there is [sic] about 15 or 20 around the globe that make up 99 percent of the market for over-the-counter derivatives.'
"With the implementation of these new "swaps' definitions, it is now estimated that somewhere between 150 and 300 entities, including energy companies, municipalities, and farm cooperatives, to mention just a few, will be required to register as swap dealers. The new margin and capital costs of this designation remain unknown.
"Dodd-Frank was supposed to provide regulators at the CFTC with a bigger and brighter flashlight to bring transparency to derivatives markets. In this case, as chairman, it's Mr. Gensler who gets to control where the flashlight shines.
"The White House and those in Congress who voted for the Dodd-Frank Act thought it would bring more transparency to the marketplace. What we now have is a dark curtain between the regulators and the oversight committees. In Chairman Gensler's CFTC, there is a black-out curtain amongst the commissioners themselves. The President has tolerated the miss-steps at the CFTC for too long and this is the result. As this Congress comes to a close, it is clear that the next Congress must perform its oversight role and shine the light of transparency on the regulators themselves."