CFTC Chairman Offers No Timetable But Says Agency “Working Hard” on Position Limits; FCA Head Says Proposed European Position Limits Unnecessary

In a speech last week before the Commodity Markets Council, Timothy Massad, Chairman of the Commodity Futures Trading Commission, highlighted recent CFTC actions benefiting commercial end-users. These included adoption of a rule amendment that exempted commercial end-users that are members of exchanges from having to maintain pre-trade communications or text messages. Mr. Massad also noted that the CFTC has recently adopted rules confirming that swap dealers are not required to collect margin from end-users in connection with uncleared swaps, and is working on a rule to eliminate the obligation of commercial participants to report trade options to swap data repositories or file special reports known as “Form TOs.” Mr. Massad indicated, however, that the Commission is “working hard” to finalize revised rules regarding position limits but committed to no conclusion date. This is because, he said, “[n]one of us currently on the Commission were in office when these rules were proposed, and therefore we are taking time to listen to you and other market participants and consider the proposals very carefully.” He indicated the CFTC is exploring the possibility to amend its previously proposed new rules, “which would have the exchanges play a greater role in granting exemptions for non-enumerated hedges.” (Click here for background in the article, “CFTC Proposed Revised Position Limit Rules” published November 12, 2013, by Katten Muchin Rosenman LLP.) Separately, Tracey McDermott, Acting Chief Executive of the Financial Conduct Authority, said that the Markets in Financial Instruments Directive II’s requirement to have position limits for every single commodity derivative traded in Europe “is not necessary.” She also claimed that the “practical details of position reporting were not adequately thought through” in the negotiation of the Directive. Ms. McDermott made these remarks in a speech generally supporting MiFID II before Bloomberg in the City of London.

My View: The UK Treasury recently announced that Andrew Bailey from the Bank of England will soon take over the reigns as head of the Financial Conduct Authority. Although her tenure has been short, Tracey McDermott, current Acting Chief Executive Officer of the FCA, has shown a remarkable frankness and level-headedness for a regulator, and her style will be missed. Recently Ms. McDermott gave a powerful speech about the pendulum of regulation where she strongly suggested that the current amount of oversight has likely shifted too far and might impede innovation. (Click here for more details in the article, “UK FCA’s Acting CEO Says Current Intensity of Regulatory Activity Is Not Sustainable” in the October 25, 2015 edition of Bridging the Week.) She has now openly questioned Europe’s proposed expansive commodity derivatives’ position limit scheme that could seriously impede the development of liquidity in some contracts. Ms. McDermott is not an industry defender in regulator’s clothing. She has made it clear she favors tough regulation, and FCA’s soon-to-be-implemented policy to potentially hold senior managers accountable for breaches in their area of responsibility is one of many indicia of that. But she has also made clear that regulating for the sake of regulating is not good public policy. According to Ms. McDermott, regulators need to take a “disciplined approach” in their oversight:

not tough for the sake of being tough not making rules for the sake of introducing rules ​not activity for the sake of being seen to be active But interventions and actions which are robust, well thought through and designed to deliver that overarching aim of markets working well.

What a refreshing approach to regulation! Hopefully Ms. McDermott’s thoughtfulness will long outlast her brief tenure as FCA CEO, and her too-short applied sensibility will influence other regulators worldwide for a much longer time!

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