Addressing the Securities Industry and Financial Markets Association, Gensler said the title of their seminar, the Post-Financial Reform Conference, was “somewhat premature”.
“Even after the President signs the Wall Street reform bill, financial reform will be far from complete,” Gensler said. “The Securities and Exchange Commission, the Federal Reserve, the Federal Deposit Insurance Corporation, the Treasury Department and the Commodity Futures Trading Commission, among others, will have a significant number of rules to write and implement to regulate the financial system.”
He warned of the long road ahead for lawyers and firms grappling with the bill, and of the crucial role still to be played by regulators in enforcing its new provisions.
“Just at the CFTC, we have organised around 30 areas where we believe rules will be necessary,” Gensler said. “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.”
“It is not enough,” he argued, “simply to promote transparency to the regulators. The financial reform package also makes the over-the-counter derivatives marketplace transparent to the public. Public market transparency greatly improves the functioning of existing securities and futures markets. With this legislation, we will be able to shine the same light on the over-the-counter derivatives markets.
“We have begun preparing for the task of writing rules for the swaps marketplace,” he continued.
“Two core principles will guide us throughout the rule-writing process. First is the statute itself. We intend to comply fully with the statute’s provisions and Congressional intent to lower risk and bring transparency to these markets.
“Second, we intend to consult heavily, both with other regulators and with the broader public. We will work very closely with the Securities and Exchange Commission, the Federal Reserve and other prudential regulators. In some circumstances, we will write rules jointly with the SEC, such as establishing definitions of ‘swap’, ‘swap dealer’, ‘major swap participant’ and similar terms on the security-based side. We also are directed to work jointly with the SEC on rules related to investment adviser reporting and mixed swaps.”
“Significant new resources”
Gensler emphasised that the CFTC’s job was only just beginning, in many senses.
“In addition to the broad rule-writing agenda that we will tackle in the coming months, the Dodd-Frank bill directs the CFTC to initiate roughly a dozen studies, reports and memoranda of understanding related to the legislation.
“The Dodd-Frank bill requires the CFTC to publish a final rule within 90 days of the bill’s enactment, or prohibition of certain retail off-exchange foreign currency transactions will take effect.”
And he hinted that the agency’s heightened role would be used as an opportunity to try and pass new rules for the securities markets, including an expansion of this year’s nascent position limit rulings.
“With other rules, the Commission will need to repropose rules,” Gensler said. “For example, the financial reform bill requires that the CFTC enact a rule to set aggregate position limits across markets. In January, the Commission published a proposed rulemaking to set position limits in the regulated futures marketplace. Thus, should the bill become law, the CFTC will repropose position limits based upon Congress’s direction across all markets.
“The next year of rule writing will test the very talented staff of the CFTC,” Gensler concluded. “Our staff has significant expertise regulating the on-exchange derivatives markets that will translate well into regulating the over-the-counter swaps markets.”
He closed with a request for “significant new resources”, adding that the CFTC’s 2011 budget of $261m was based on the House-passed version of the bill last December. “Congress requested an updated estimate given the additional requirements of the Conference Report, and we estimated that an additional $25m would be appropriate,” Gensler said.
Tom Osborn +44 207 779 8361 tosborn@fow.com