CFTC COMMISSIONER WETJEN'S STATEMENT BEFORE GLOBAL MARKETS ADVISORY COMMITTEE MEETING

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION

Opening Statement by Commissioner Mark Wetjen before the CFTC’s Global Markets Advisory Committee Meeting

May 14, 2015

Thank you everyone for participating today. I would like to welcome Chairman Massad, Commissioner Bowen, and Commissioner Giancarlo, and extend a special warm welcome to our expert panelists.

Our panelists join us from around the globe and include:

David Bailey from the Bank of England;
Fabrizio Planta from the European Securities and Markets Authority;
Shunsuke Shirakawa from Japan’s Financial Services Agency;
Jeffrey Marquardt from the Federal Reserve; and
Sean Campbell from the Federal Reserve.
Also joining us today are staff members from the CFTC:

Bob Wasserman;
Carlene Kim; and
Paul Schlichting.
And I want to extend my welcome to the GMAC members and thank you again for convening today to discuss the topics of central counterparty (CCP) risk management, and the CFTC’s cross-border application of its margin rule for uncleared swaps.

Before I turn to Chairman Massad and the other commissioners, I want to make a couple of brief remarks.

Importance of the Clearing Market Structure

Clearinghouses are at the heart of the new market structure for cleared swaps. As we all know, the G20 recommended that this structure be implemented around the globe, and I strongly supported this effort at the CFTC.

Importantly, in the aftermath of the G20 communique, market regulators around the globe, including the CFTC, have raised significantly the standards that CCPs must meet for authorization to do business. Considerable international coordination of this effort was facilitated through the work of CPMI-IOSCO.

Clearinghouses registered with the CFTC now have enhanced financial-resource and liquidity requirements, as well as other risk management standards, that reflect their heightened role in the marketplace.

I recognize, however, that as clearing volumes increase, we need to be cognizant of, and effectively address, the resulting increased concentration of risk in the cleared space. Many market participants and stakeholders have rather vocally expressed concerns about this.

To maintain consensus behind the cleared market structure, it is important for policy makers to provide a forum to discuss the aforementioned concerns, and review whether further enhancements should be considered. That is why today’s meeting has been convened.

Today’s meeting presents an opportunity to sharpen our thinking about whether and how to further improve the cleared market structure, and how to keep pace with marketplace and technological advancements, especially as they relate to CCPs. In particular, today’s agenda focuses on the framework for conducting CCP stress tests, and the appropriate scaling of CCP capital within a CCP’s default waterfall.

Global coordination on these issues is particularly crucial. That is why I am grateful to have David, Fabrizio, and Shunsuke here today to give us their perspectives. Your contributions to today’s debate, as well as any subsequent policy development in your home countries, are highly relevant, important, and appreciated.

I should also add that, even though there remains some uncertainty about how different jurisdictions will treat one another’s CCPs more generally on a going forward basis, it’s important to pursue an open dialogue like the one today, or the ones we experienced earlier this year at Commissioner Bowen’s Market Risk Advisory Committee meeting and the CFTC staff roundtable.

I see only benefits to having an open dialogue like the one today between regulators and market participants, which will enhance a mutual understanding in the official sector, and lead to better policy outcomes.

Margin for Uncleared Swaps

I also look forward to hearing the views of our panelists and GMAC members regarding the application of the CFTC’s margin rule to cross-border swaps, and swaps between affiliates.

Last fall the commission issued an advanced notice of proposed rulemaking that laid out three different cross-border approaches it could take. The comment file appears to heavily favor an approach that mirrors the one proposed by the prudential regulators, which relies on the availability of substituted compliance but also applies U.S. jurisdiction to more firms and transactions than the CFTC’s cross-border guidance. Today’s discussion will help the commission understand better the relative merits of these approaches and clarify which approach to pursue.

Again, thank you for being here today, and I look forward to our discussion.

Last Updated: May 14, 2015

CFTC COMMISSIONER MARK WETJEN GIVES TESTIMONY BEFORE CONGRESS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
Testimony of Commissioner Mark Wetjen Before the U.S. House Committee on Agriculture Subcommittee on General Farm Commodities and Risk Management, Washington, DC

July 23, 2013

Good morning Chairman Conaway, Ranking Member Scott, and members of the subcommittee. Thank you for inviting me to testify this morning and share some of my perspectives on the future of the Commodity Futures Trading Commission. It is a pleasure to be here.

I want to personally thank Chairman Conaway for his open dialogue with me since I joined the commission. I have found our discussions to be useful and hopefully mutually beneficial.

I also want to acknowledge my friend, Commissioner O’Malia, who is beside me today. I have admired his skills in analyzing and bringing attention to important issues raised by our rules or other market developments. I hope he would agree that we have developed a good working partnership at the agency.

For a host of reasons, now is a very good time for not only this subcommittee, but all stakeholders in the CFTC, to reflect on what the future might bring for this agency. Allow me to mention a few.

First, and most obviously, Congress must address the expiring authorization for the agency, which is the primary reason for the hearing today and of course will require a congressional response. I appreciate this subcommittee’s efforts to work toward making that response an informed one that seeks to solve any inadequacies or other problems related to the Commodity Exchange Act or the work of the commission.

It is my hope and belief that many of the issues raised by CFTC rulemakings in the past three years that eventually became the subject of congressional legislation have been resolved or adequately addressed in our final rules or through other relief granted by the agency. With or without additional direction from Congress through CFTC re-authorization, it is important that the agency and its staff continue to find ways to address problems that are still in need of a solution.

Second, the commission’s implementation of Title VII of Dodd-Frank is for the most part finished. We have almost 80 swap dealers now registered with the CFTC, clearing mandates in place for a broad swath of the swap market, and new reporting obligations for market participants. The commission also just completed its cross-border guidance, informing market participants and other regulators how the commission’s rules will be applied to activities and entities overseas.

Looking ahead through the lens of what already has been done, the commission and all stakeholders will need to closely monitor and, if appropriate, address the inevitable challenges that that will come with implementing the new regulatory framework under Dodd-Frank.

Third, while most of the commission’s work to implement Dodd-Frank is complete, there remain important rulemakings and administrative matters in the months ahead. Perhaps most importantly, the commission, along with the Federal Reserve, the OCC, the FDIC, and the SEC, must finalize its rulemaking on the so-called “Volcker Rule.”

The agency also must undertake “substituted compliance” determinations under the recently finalized cross-border guidance. This will involve a review of swap-regulatory regimes in other nations to determine whether they are “comparable and comprehensive” or “essentially identical” to U.S. law.

The commission also must finalize its rulemaking on capital-and-margin requirements for un-cleared swaps. And there are two very important rulemakings related to the international harmonization of risk-management requirements on clearing houses, which dovetails with the substituted-compliance determinations.

Another critical rulemaking, albeit not directly related to Dodd-Frank, is the commission’s customer-protection rule that seeks to improve risk-management practices at futures commission merchants.

Finally, given that the U.S. has nearly delivered on its G20 commitments to derivatives reform, and the European Union is close behind, all of us can spend more time focusing on the developing market structure for swaps on a more global scale. The commission already has authorized new trading platforms for swaps, and Europe is about to do the same. We anticipate that with these developments many swaps will be executed on regulated and transparent marketplaces located both here and abroad, facilitating global liquidity formation and risk management. Consistent with this result, I believe the commission’s cross-border guidance reversed a developing trend toward market and risk-management fragmentation that would have been counterproductive to the goals of Dodd-Frank as well as the G20 commitments.

But we all must wait and see to a greater degree what developments will take shape outside of the U.S. and Europe. Other jurisdictions that host a substantial market for swap activity are still working on their reforms, and certainly will be informed by our work. All of us will need to monitor those developments closely, with an eye toward how they could separate those jurisdictions from the fabric we – along with our European partners – stitched together in last week’s accord.

In other words, the commission must remain vigilant in monitoring, identifying, and addressing risk, and continually prioritize so we are focused on the greatest threats. Indeed, another threat identified by the Treasury Secretary last week must be part of this global monitoring: the cyber-security threat. As marketplaces and systems continue to rely more and more on technology, the need to better understand and protect against cyber-security threats to the markets the commission regulates increases. There are multiple task forces and coalitions formed of domestic and international partners that the commission will need to work with to ensure success on this front.

Thank you again for inviting me today. I would be happy to answer any questions from the panel.