The Potential New CFTC Chair Suggesteth and the Current CFTC Chair Revieweth

During a speech last week before ISDA’s Trade Execution Legal Forum, Commissioner J. Christopher Giancarlo gave a preview of some of his potential actions if he becomes Acting Chairman of the Commodity Futures Trading Commission, as expected, on or before the inauguration of President-elect Donald Trump.

Regarding recently re-proposed Regulation Automated Trading, Mr. Giancarlo reiterated his opposition to provisions requiring production of source code without a subpoena as well as concerns with some of the “prescriptive risk controls, and development, testing and reporting requirements” that he considers not reflective of industry best practices.

Notwithstanding, he said he was open to a number of the proposed rules elements. According to Mr. Giancarlo, “[i]it is certainly time to formulate and establish well-considered policy responses to the digitization of contemporary markets and then take action in a deliberate and through manner to enhance market liquidity, safety and soundness.”

In the same speech, Mr. Giancarlo again criticized the CFTC’s swaps trading regulatory framework and the negative impact he perceives it has had on liquidity in global swaps markets.

Mr. Giancarlo says that liquidity has been fractured between “an on-[Swap Execution Facility], US person market on one side and an off-SEF, non-U.S. person market on the other.”

According to Mr. Giancarlo, “[t]he time has come for the CFTC to revisit its flawed swaps trading rules to better align them to market dynamics, allow U.S. swap intermediaries to fairly compete in world markets and reverse the tide of global market fragmentation.”

Also last week, in voting to issue the re-proposed regulations regarding position limits, Mr. Giancarlo noted that he had “always been open to supporting a well-conceived and practical position limits rule that restricts excessive speculation.”

Although he suggested there was more refinement that needed to be undertaken to the proposed rules, he indicated that the CFTC’s current re-proposed requirements “provide the basis for the implementation of a final position limits rule that I could support.”

In speeches last week, Timothy Massad, the current CFTC chairman, discussed the benefits of mandatory clearing by noting the resilience of the clearing system during recent market volatility precipitated by the UK Brexit vote and warning that “eliminating essential derivatives reforms would be a big step backward.” He also urged continued attention to concerns raised by automated trading.

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