The gloves are off – even
those who served as commissioners in the earlier term are
throwing the work of the CFTC under the bus, write Allan D
Never have we seen a US agency issue so many no action letters,
exemptive orders and extensions of time for implementing
regulations as did the CFTC under Chairman
Current Commissioner Wetjen, formerly acting Chairman in the
transition, has portrayed the Commission’s earlier
rules as flawed but attributed it to other jurisdictions less
comprehensive regulatory regimes
"It does appear to be largely rooted in the fact that there
is currently more comprehensive regulation of the derivatives
markets in certain locales, particularly the U.S., as other
jurisdictions continue implementing G20 reforms," he said last
However, newly installed CFTC Commissioner Chris Giancarlo was
less accommodating to the work of the past CFTC regime, even
titling his recent Financial Times Op-ed "Flawed
US rules fragment swaps market".
In a more recent Wall Street Journal Op-ed Commissioner
Giancarlo repeated his use of the term
flawed"…the CFTC issued a benign-sounding
'Staff Advisory Notice’, which imposed flawed and
overly complex rules on trading activity in swaps and other
To be fair, the legislation
rushed through was, with hindsight, an overreaction to the
panic of the financial crisis.
All government workers who
served under our global leaders caught the
Similar false starts and knee
jerk legislation had been promulgated throughout Europe.
A thorough reading of the
public comments and consultative papers accumulated in the
aftermath of the financial crisis show an overreliance on best
practices of the past masquerading as best thinking for the
future of swaps legislation.
Ideas from listed futures and
equity markets where quickly enlisted to serve as templates for
a new swaps structure.
No matter that listed markets
evolved over centuries, were quite liquid and had broad
interest from individuals as well as commercial and
institutional speculators and hedgers.
As Commissioner Giancarlo said
in a recent paper "It is a square peg being forced into a
Those 'pegs" are the pillars of
the new swaps infrastructure, the technology one not the
Technology considerations were
left out from the debate until it became apparent that what was
in the legislation and then the regulations could not be
implemented without technology.
Importantly, the new swaps
regime was to be the first new market that was to be globally
overseen by regulators, making standards of identification of
market participants and contracts, and uniformity of data
representation of paramount importance.
Regulators and industry
practitioners alike, in swaps and all other traded markets, are
now hostage to a technology dependent financial
Without understanding how the factory is to turn out the legally described regulations in technically designed solution, we are at a stall point in implementing many of these regulations.
Without understanding how the
factory is to turn out the legally described regulations in
technically designed solution, we are at a stall point in
implementing many of these regulations.
As Chairman Massad said
recently in an interview on CNBC "It’s a huge
information technology challenge".
The issue of data dependency
has been recognised across the regulatory landscape, no longer
an afterthought to be considered after regulations are
David Wright, Secretary General
of IOSCO said in a recent speech in Asia: "I do think there
is a general data issue…I think we don’t
have a sufficient understanding of market-based financial
Former CFTC Commissioner
O’Malia, upon becoming the CEO of ISDA stated in
his resignation letter to President Obama his commitment to
technology "I have also advocated for transforming the
commission into a 21st century regulator by utilizing automated
systems to identify threats posed by the concentration of risk
and to perform the critical market surveillance
duties." Advocacy, however, just like regulations,
has to be translated into implementable technology solutions
and data standards.
It is refreshing to see the
recognition of past excesses of regulatory dictatorship and
misunderstandings of market practices.
Now comes the hard parts:
thoughtful regulations that recognises globalisation is here to
stay; regulations that are written with the understanding that
technology ultimately underpins and makes regulation
implementable; that transparency of transaction data is the
means to observe that which regulators are mandated to oversee;
and, finally, that data standards are paramount to implement
all of the above.
Allan D. Grody is the President of Financial Intergroup