SEC COMMISSIONER SPEAKS ON THE STATE OF THE MUNICIPAL SECURITIES MARKET

The following speech is an except from the SEC website: "Speech by SEC Commissioner: Statement at SEC Field Hearing on the State of the Municipal Securities Market by Commissioner Elisse B. Walter U.S. Securities and Exchange Commission Birmingham, AL July 29, 2011 Good morning, and thank you Mayor McBrayer, for that kind introduction, and for welcoming us to Homewood. It is a pleasure to be here with so many knowledgeable municipal market participants who are joining us today to give us the benefit of their expertise on issues of central importance to the municipal securities market. For those of you joining by webcast, thank you for tuning in. I am sure that all of you were looking forward to hearing from SEC Chairman Mary Schapiro this morning. Unfortunately, due to a family health emergency, Chairman Schapiro is not able to participate in today’s hearing. She sends her sincere regrets. The distinguished Chairman of the House Financial Services Committee, the Honorable Spencer Bachus, had also hoped to be with us today. However, as we all know, Capitol Hill is a particularly busy place at the moment. Due to the urgency of the national debt ceiling negotiations, Chairman Bachus is also unable to attend today’s hearing in person. We are very pleased, however, that Larry Lavender, the Majority Staff Director of the House Financial Services Committee, will be speaking to you on behalf of Chairman Bachus after I conclude my opening remarks. OVERVIEW OF FIELD HEARINGS Given the SEC’s limited authority over municipal securities, our options for addressing problems in this market have historically been quite limited. However, as the municipal market grows larger and more complex, it is increasingly important that we redouble our efforts and give this critical marketplace much needed concentrated and greater attention -- and we are doing just that. As many of you know, the SEC was created to be, in the words of one early Commission Chairman, “the investor’s advocate.” That means we work to help ensure that investors are protected and have the information they need to make informed decisions. As their advocates, we are concerned that investors in the municipal securities market may not have the protections and access to information that they need. We are also concerned that they may not be able to make fully informed investment decisions regarding the prices of securities they wish to buy or sell in many cases or the spreads demanded by the brokers who make the market. These conditions can lead to market distortions and prevent investors from accurately calculating risk when making investments, potentially leaving them more exposed than they understand or wish to be. That is why we have undertaken a concerted effort to study the municipal securities market. Last year, Chairman Schapiro asked me to lead an initiative to review the state of the municipal market by gathering input from market participants and identifying ways in which the Commission can improve the state of the market for investors. Today’s hearing is the third in a series of field hearings designed to elicit the analyses and opinions of a broad array of participants in the municipal market -- our first hearing was in San Francisco last September, and our second was held in Washington, DC in December. We scheduled these hearings because we believe policy-makers should be informed by experiences of those who live and work outside of Washington, D.C. This is particularly true with respect to municipal securities, given their impact on local communities and retail investors. In addition to these field hearings, our team has spent a tremendous amount of time over the past year meeting and speaking with interested parties on issues spanning from disclosure to accounting to market dynamics to credit ratings, and beyond. I can say from experience –- having participated in most of these meetings –- that this has been an extremely interesting, informative and rewarding process. As we draw to the close of the “information gathering stage” of our initiative, Commission staff will begin to prepare a report concerning what we have learned, including their recommendations for further action that we should pursue. These may include recommendations for changes in legislation, regulations, and industry practice. A BROADER IMPACT The SEC’s focus is and should be on protection of investors. However, investors who place their funds in municipal securities often are also residents and taxpayers of those municipalities. And, investors, taxpayers and municipal officials often have the same concerns about transparency and fair dealings in municipal finance. The case that may most starkly illustrate the alignment of investor and taxpayer interests happened right here, in Jefferson County. In 2009, an SEC enforcement action resulted in a settlement with JP Morgan, which we asserted used corrupt political contacts to win the role of underwriter for sewage system bond offerings -- and then helped Jefferson County enter into some of the financing and refinancing strategies that cost county ratepayers hundreds of millions of dollars. As a result of the SEC action, JP Morgan paid a $25 million penalty, which was sent to Jefferson County, and also paid Jefferson County an additional $50 million in compensation. And, most significantly, JP Morgan agreed to cancel more than $647 million in claimed termination fees. But, I strongly suspect that enforcement alone is cold comfort to many of those who have been affected by what has happened in Jefferson County. As you know, this has been a particularly difficult time. Over the past month, the County has been operating under a standstill agreement, in an attempt to avoid filing for bankruptcy. While our project began over a year ago, the confluence of events highlights the importance of municipal securities not only to the securities market and investors, but also to communities and taxpayers. It reinforces the fact that investors need to get good information from municipalities, and municipalities need to get fair and honest advice from financial professionals. We are here to explore whether investors need additional tools so that they can make better decisions and whether regulators need additional tools to do their best to enhance the soundness of, and investor confidence in, the municipal securities markets. OVERVIEW OF TODAY’S HEARING Today’s panels will focus on issues related to distressed communities, small issuers, disclosure, derivatives and pre-trade price transparency. Our first panel on distressed communities will explore some of the causes of financial distress for municipalities, the options available to distressed municipalities, including bankruptcy, and the consequences of various courses of action. Next, our panel on small issuers will provide an opportunity to hear about the practical implications of issuer size on issuers’ activities in the market, their interactions with financial intermediaries and their ability to meet regulatory requirements. And, our panel on derivatives will touch on municipal entities’ use of derivatives, municipal officials’ understanding of derivatives’ risks, the role of other market participants in municipal derivatives, and disclosures relating to these complex agreements. We will also be addressing the two topics that have been our principal areas of focus: disclosure and pre-trade price transparency. On disclosure, we have heard consistently that investors need more timely and accurate information from issuers in order to make informed decisions. On the other hand, we hear from issuers about the practical limitations they face: difficulties aggregating fiscal information from constituent governments, resource constraints and other challenges. Our panel on disclosure will feature issuer and investor representatives, and I look forward to an engaging discussion exploring both sides’ perspectives. Regarding pre-trade price transparency, investors tell us that they face challenges because municipal securities – like other types of bonds – are traded for the most part through decentralized, dealer intermediated, over-the-counter markets. Unfortunately, information about quotes and trading interest in these markets is not readily available to retail investors. Great strides have been made in terms of post-trade transparency of information in the last few years, thanks to real-time reporting and the EMMA system available via the website of the Municipal Securities Rulemaking Board, or MSRB. However, because of the low liquidity levels of many municipal bonds, trade data can be weeks or months old –- and, therefore, not very helpful to investors who are trying to assess bond pricing. Investors need better information and better access both to tap liquidity and to provide it. Our panel on pre-trade price transparency will focus on the existing landscape for pricing information in the municipal market, and ways in which the market can move toward giving investors better information, and consequently, greater confidence in pricing. We have gathered an impressive group of knowledgeable individuals representing a wide spectrum of viewpoints for all our panels today, and I am confident that they will shed light on –- and advance the discussion of –- all of these important issues. What we hear from today’s panelists, along with what we have gleaned from our prior hearings and countless meetings and conference calls, will be instrumental in informing the recommendations that will be included in the SEC staff report. INTRODUCTIONS And now, let me introduce you to my colleagues who are here with us today. I am joined at this table by Robert Cook, the Director of the Division of Trading and Markets, the Division that helps the Commission carry out its mission of maintaining fair, orderly, and efficient markets for the benefit of investors. Robert’s division currently houses the SEC’s Office of Municipal Securities. Our role will be to listen, learn and engage with the panelists by asking questions. And, in addition to welcoming you, I must remind you, on behalf of myself and all other Commission participants, of the Commission's standard disclaimer –- that is that our remarks today represent our own views, and not necessarily those of the Commission, other Commissioners, or members of the staff.1 The moderators of today's panels are Dave Sanchez, Attorney-Fellow, Office of Municipal Securities, Division of Trading and Markets; Amy Starr, Chief, Office of Capital Market Trends, Division of Corporation Finance; and Alicia Goldin, Special Counsel, Office of Chief Counsel, Division of Trading and Markets. My appreciation goes as well to my counsels Cyndi Rodriguez and Lesli Sheppard who have been by my side throughout this effort, to the entire team of municipal securities experts at the Commission – including Will Hines, from the Division of Corporation Finance and Suzanne McGovern from the Office of Compliance, Inspections and Examinations – who are here with us today; and to all of those who are busy at work back in DC, including Rachel Hurnyak from Chairman Schapiro's office who has handled the logistics for all of our hearings. Rachel has been incredibly helpful to us up until her very last day at Commission headquarters –- which happens to be today –- and we will miss her greatly. We also want to thank Ammani Nagesh, from Chairman Schapiro’s office -- who probably greeted you as you walked in today –- and who is ensuring that today’s event runs smoothly. And, we are happy to be joined as well by the Director of the Commission’s Atlanta Regional Office, Rhea Dignam, as well as Peter Diskin from that office, Judy Burns from the Office of Public Affairs and our audio-visual experts, Myron Fears and Tony Cook. I would also like to welcome and introduce our fellow regulators in attendance: from the MSRB, we have Ernie Lanza, Deputy Executive Director and General Counsel and from the Financial Industry Regulatory Authority (“FINRA”), we have Malcolm Northam, Director of Fixed Income Securities. The MSRB and FINRA, as you know, play critical roles in regulating professionals who operate in the municipal market and their assistance has been invaluable. Also participating in today’s event are former SEC Commissioner Rick Roberts and the Director of the Alabama Securities Commission, Joe Borg. We have with us as well a number of other highly knowledgeable state and local officials — Luther Strange, Alabama Attorney General; Bob Scott, Assistant City Manager and Chief Financial Officer of the City of Carrollton, Texas; Charlie Duggan, City Manager of the City of Auburn, Alabama; Ben Watkins, Director of the Division of Bond Finance for the State of Florida; and Mary-Margaret Collier, Director of the Office of State and Local Finance in the State of Tennessee. I am also delighted that Treasurer David H. Lillard from the State of Tennessee and, I believe, a number of Jefferson County Commissioners are in the audience today. And of course, we are extremely grateful to all of our panelists for agreeing to participate in our field hearing – many of whom have travelled in order to join us today. Thank you. Last, but not least, I’d like to thank Chairman Bachus for taking a strong interest in these important issues. We very much appreciate the assistance that Chairman Bachus’s staff has provided as we planned this hearing, and we are pleased that Larry Lavender, Walton Liles and Kevin Edgar are here with us today. I would now like to welcome Larry Lavender to make a few remarks this morning. [Larry Lavender Remarks] Thank you, Larry. I will conclude by providing a brief overview of the mechanics of today’s hearing. STRUCTURE OF TODAY’S HEARING AND OTHER LOGISTICS We have an exciting agenda for today –- packed with interesting and timely topics. The format of today's field hearing will entail five panels. As moderators, Dave, Amy and Alicia will introduce their topics and panelists. Each panelist will then make brief opening remarks. Following the opening remarks, the panelists will be asked questions by the moderator and those of us at this table. We will look to each panel to help us to understand better the particular concerns of different market participants, highlight key areas for improvement, and provide some concrete ideas for moving forward. At our past hearings, panelists have engaged with us and with each other in candid and lively discussions, and I look forward to similar engagement today. A few housekeeping items before we begin. First, we'd like to ask the panelists, moderators, and other questioners to please stand your nameplate vertically when you would like to speak. Second, there will be a lunch break from 12:30 to 2 p.m. There are a number of restaurants within walking distance of Rosewood Hall. Our last panel of the day will conclude by 4:00 p.m. A live video stream of this hearing is available on the Commission’s website. Additionally, a written transcript of today's event will be made available on the Commission's website, as well as any written statements and presentations provided by the panelists. Finally, we encourage investors and all other interested parties to submit comments related to the municipal securities market by using the comment form on the SEC website or sending an e-mail to munifieldhearings@sec.gov. Again, we’re so pleased that you are here today and hope this will prove to be an enlightening experience for all. I will now turn it over to Dave to start our first panel. Endnotes 1 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publications or statements by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission, other Commissioners, or the staff."

FDIC TAKES OVER VIRGINIA BUSINESS BANK

The following excerpt is from an e-mail sent out by the FDIC: Virginia Business Bank, Richmond, Virginia, was closed today by the Virginia State Corporation Commission. The Federal Deposit Insurance Corporation (FDIC) was appointed as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Xenith Bank, Richmond, Virginia, to assume all of the deposits of Virginia Business Bank. The sole branch of Virginia Business Bank will reopen on Monday as a branch of Xenith Bank. Depositors of Virginia Business Bank will automatically become depositors of Xenith Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of Virginia Business Bank should continue to use their existing branch until they receive notice from Xenith Bank that it has completed systems changes to allow other Xenith Bank branches to process their accounts as well. This evening and over the weekend, depositors of Virginia Business Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual. As of March 31, 2011, Virginia Business Bank had approximately $95.8 million in total assets and $85.0 million in total deposits. In addition to assuming all of the deposits of the failed bank, Xenith Bank agreed to purchase essentially all of the assets. Customers with questions about today's transaction should call the FDIC toll-free at 1-800-837-0215. The phone number will be operational this evening until 9:00 p.m., Eastern Daylight Time (EDT); on Saturday from 9:00 a.m. to 6:00 p.m., EDT; on Sunday from noon to 6:00 p.m., EDT; and thereafter from 8:00 a.m. to 8:00 p.m., EDT. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/vbb.html. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $17.3 million. Compared to other alternatives, Xenith Bank's acquisition was the least costly resolution for the FDIC's DIF. Virginia Business Bank is the 59th FDIC-insured institution to fail in the nation this year, and the first in Virginia. The last FDIC-insured institution closed in the state was Imperial Savings and Loan Association, Martinsville, on August 20, 2010."

FORMER WASTE MANAGEMENT CFO ORDERED TO PAY $25 MLLION

Te folowing excerpt is fromthe SEC website: July 29, 2011 Former CFO of Waste Management Ordered to Pay $2.5 Million The Securities and Exchange Commission announced today that on July 28, 2011, the United States District Court for the Northern District of Illinois entered an Amended Final Judgment against James E. Koenig, the former Chief Financial Officer of Waste Management Corporation, ordering that he pay $2.5 million in SEC v. James E. Koenig, 02 C 2180 (N.D. Ill. filed Mar. 26, 2002). Koenig was ordered to make an upfront payment of $1.25 million and to pay the remaining $1.25 million in regular installments over the next two years. The Commission’s complaint alleged that beginning in 1992 and continuing into 1997, Koenig and others engaged in a systematic scheme to falsify and misrepresent Waste Management’s financial results with profits being overstated by $1.7 billion. In June 2006, after an 11-week trial, a jury returned a verdict in the Commission’s favor against Koenig on all 60 violations charged, including securities fraud, falsifying company books and records, making false statements in filings with the Commission, lying to auditors, and aiding and abetting the company’s violations. On December 21, 2007, following a two-day bench trial on remedies, the district court entered a Final Judgment against Koenig that permanently barred him from acting as an officer or director of a public company, and enjoined him from violating, or aiding and abetting violations of, Sections 10(b), 13(a), and 13(b)(2)(A) of the Securities Exchange Act of 1934; Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder; and Section 17(a) of the Securities Act of 1933. The judgment also required Koenig to pay disgorgement, prejudgment interest, and civil penalties. On February 26, 2009, the U.S. Court of Appeals for the Seventh Circuit affirmed all issues of liability and trial procedure, but remanded for further proceedings with respect to the monetary amount of the judgment. On November 23, 2009, the district court on remand reaffirmed its prior Final Judgment, and Koenig appealed. The Amended Final Judgment represents a compromise reached through mediation before the Seventh Circuit’s Settlement Conference Office while the case was on appeal. The permanent officer and director bar and injunction remain unchanged and in full force and effect."

5 GO TO PRISON FOR A@O RESOURSE MANAGEMENT LTD. FRAUD SCHEME

The following case is an excerpt from the Department of Justice website: July 22, 2011 "WASHINGTON – Five employees for A&O Resource Management Ltd. and various related entities – including two executives – were sentenced today for their roles in a $100 million fraud scheme with more than 800 victims across the United States and Canada. The sentences were announced by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division. The five individuals were sentenced by U.S. District Judge Robert E. Payne. Russell E. Mackert, 52, general counsel for A&O, was sentenced to 188 months in prison; Brent Oncale, 36, former owner and founder of A&O, was sentenced to 120 months in prison; David White, 41, the former president of A&O, was sentenced to 60 months in prison; Eric M. Kurz, 47, a wholesaler of A&O investment products, was sentenced to 60 months in prison; and Tomme Bromseth, 69, an A&O sales agent in the Richmond area, was sentenced to 36 months in prison. “The impact of this massive fraud on many of A&O’s investor victims has been disastrous,” said U.S. Attorney MacBride. “Hundreds of elderly investors invested their life savings with A&O and saw it all vanish in an instant. These investors were not looking for quick cash, just a safe alternative to invest their retirement funds. The safety, security, and no-risk nature of the investment was critical to the sales pitch, and it was all a big fat lie.” “Brent Oncale and his co-conspirators operated a sham investment company that turned fraud and deceit into a business model,” said Assistant Attorney General Breuer. “They stole millions from hundreds of unsuspecting investors, pocketing huge sums for themselves. Today’s sentences reflect the severity of these cowardly and costly crimes.” All five men pleaded guilty in the fall of 2010 and early 2011 for their roles in the fraud scheme at A&O, which falsely marketed life settlement products to investors, many of whom were elderly. The conspirators at A&O defrauded investors by making misrepresentations about A&O’s prior success, its size and office locations, its number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds. When state regulators began to scrutinize A&O’s investment products, conspirators manufactured a sham sales transaction to “sell” A&O to an offshore shell corporate entity named Blue Dymond and later to another offshore shell corporate entity named Physician’s Trust. However, A&O and Physician’s Trust was still secretly controlled by A&O principals and their conspirators. On June 6, 2011, the hedge fund manager of A&O, Adley H. Abdulwahab, 35, of Houston, was convicted by a jury in Richmond, Va., of one count of conspiracy to commit mail fraud, five counts of mail fraud, one count of conspiracy to commit money laundering, five counts of money laundering and three counts of securities fraud. A founder of A&O, Christian Allmendinger, 39, was convicted by a jury on March 23, 2011, of one count of conspiracy to commit mail fraud, two counts of mail fraud, one count of conspiracy to commit money laundering, two counts of money laundering and one count of securities fraud. Abdulwahab is scheduled to be sentenced on Sept. 28, 2011, and Allmendinger is scheduled to be sentenced on Aug. 14, 2011. They face up to 20 years in prison on each count except the securities fraud counts, on which they face up to five years in prison. This investigation was conducted by the U.S. Postal Inspection Service, Internal Revenue Service, and FBI, with significant assistance from the Texas State Securities Board and the Virginia Corporation Commission. These cases are being prosecuted by Assistant U.S. Attorneys Michael S. Dry and Jessica Aber Brumberg from the Eastern District of Virginia and Trial Attorney Albert B. Stieglitz Jr., of the Criminal Division’s Fraud Section. The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force."

FORMER HEDGE FUND MANAGER TO PAY $1 MILLION PENALTY

The following case is an excerpt from the CFTC website: “Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and simultaneously settling charges that Christopher Louis Pia of North Castle, N.Y., while employed as portfolio manager for Moore Capital Management, LLC (Moore Capital), attempted to manipulate the settlement prices of palladium and platinum futures contracts on the New York Mercantile Exchange (NYMEX). Moore Capital is a predecessor of Moore Capital Management, LP. The CFTC order requires Pia to pay $1 million civil monetary penalty. It also permanently bans Pia from trading CFTC-regulated products during the closing period of the markets and from trading CFTC-regulated products in platinum and palladium. The order further requires Pia to distribute a copy of the CFTC order to current investors and to current and future employees, principals, and officers and to provide a disclosure document setting out the CFTC action to existing and prospective clients. The CFTC order finds that, from at least November 2007 until May 2008 (relevant period), Pia attempted to manipulate the settlement prices of palladium and platinum futures contracts by engaging in a trading practice known as “banging the close.” Specifically, Pia caused to be entered market-on-close buy orders that were executed in the last ten seconds of the closing period for both contracts in an attempt to exert upward pressure on the settlement prices of the futures contracts. Pia engaged in this trading strategy at Moore Capital frequently throughout the relevant period, the order finds. According to CFTC Division of Enforcement Director David Meister: “To protect market participants and promote market integrity, individuals who attempt to manipulate commodity prices must and will be held personally accountable. As demonstrated by today's action, the Commission will not hesitate to impose significant sanctions on such traders.” The CFTC order further requires that a monitor ensures Pia’s compliance with the order for a five-year period and establishes undertakings related to any entity Pia owns or controls. The order also imposes registration conditions if Pia or any of his entities become registered with the CFTC for a period of five years from the date of the order. Within 120 days of the issuance of the order, Pia must submit a report to the Commission on his compliance with the undertakings required in the order. On April 29, 2010, the CFTC issued an order filing and settling similar charges of attempted manipulation of platinum and palladium futures settlement prices in 2007 – 2008 and supervisory violations against Moore Capital Management, LP (MCM), Moore Capital Advisors, LLC (MCA), both based in New York, N.Y., and Moore Advisors, Ltd. (MA), a Bahamian entity. The CFTC order required MCM, MCA, and MA jointly and severally to pay a $25 million civil monetary penalty and placed restrictions on their CFTC registrations, including a two-year restriction on trading during the closing periods of the palladium and platinum futures and options markets (see CFTC Press Release 5815-10, April 29, 2010). The CFTC thanks the CME Group, the parent company of the NYMEX, for its assistance.”

CFTC CHAIRMAN TESTIFIES BEFORE HOUSE COMMITTEE ON AGRICULTRE

"Testimony Before the U.S. House Committee on Agriculture, Washington, DC Chairman Gary Gensler June 21, 2011 Good afternoon Chairman Lucas, Ranking Member Peterson and members of the Committee. I thank you for inviting me to today’s hearing on the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). I am pleased to testify on behalf of the Commodity Futures Trading Commission (CFTC). I also thank my fellow Commissioners and CFTC staff for their hard work and commitment on implementing the legislation. Financial Crisis One year ago, the President signed the Dodd-Frank Act into law. And on this anniversary, it is important to remember why the law’s derivatives reforms are necessary. The 2008 financial crisis occurred because the financial system failed the American public. The financial regulatory system failed as well. When AIG and Lehman Brothers faltered, we all paid the price. The effects of the crisis remain, and there continues to be significant uncertainty in the economy. Though the crisis had many causes, it is clear that the derivatives or swaps market played a central role. Swaps added leverage to the financial system with more risk being backed by less capital. They contributed, particularly through credit default swaps, to the bubble in the housing market and helped to accelerate the financial crisis. They contributed to a system where large financial institutions were thought to be not only too big to fail, but too interconnected to fail. Swaps – developed to help manage and lower risk for end-users – also concentrated and heightened risk in the financial system and to the public. Derivatives Markets Each part of our nation’s economy relies on a well-functioning derivatives marketplace. The derivatives market – including both the historically regulated futures market and the heretofore unregulated swaps market – is essential so that producers, merchants and end-users can manage their risks and lock in prices for the future. Derivatives help these entities focus on what they know best – innovation, investment and producing goods and selling and services – while finding others in a marketplace willing to bear the uncertain risks of changes in prices or rates. With notional values of more than $300 trillion in the United States – that’s more than $20 of swaps for every dollar of goods and services produced in the U.S. economy – derivatives markets must work for the benefit of the American public. Members of the public keep their savings with banks and pension funds that use swaps to manage interest rate risks. The public buys gasoline and groceries from companies that rely upon futures and swaps to hedge swings in commodity prices. That’s why oversight must ensure that these markets function with integrity, transparency, openness and competition, free from fraud, manipulation and other abuses. Though the CFTC is not a price-setting agency, recent volatility in prices for basic commodities – agricultural and energy – are very real reminders of the need for common sense rules in all of the derivatives markets. The Dodd-Frank Act To address the real weaknesses in swaps market oversight exposed by the financial crisis, the CFTC is working to implement the Dodd-Frank Act’s swaps oversight reforms. Broadening the Scope Foremost, the Dodd-Frank Act broadened the scope of oversight. The CFTC and the Securities and Exchange Commission (SEC) will, for the first time, have oversight of the swaps and security-based swaps markets. Promoting Transparency Importantly, the Dodd-Frank Act brings transparency to the swaps marketplace. Economists and policymakers for decades have recognized that market transparency benefits the public. The more transparent a marketplace is, the more liquid it is, the more competitive it is and the lower the costs for hedgers, which ultimately leads to lower costs for borrowers and the public. The Dodd-Frank Act brings transparency to the three phases of a transaction. First, it brings pre-trade transparency by requiring standardized swaps – those that are cleared, made available for trading and not blocks – to be traded on exchanges or swap execution facilities. Second, it brings real-time post-trade transparency to the swaps markets. This provides all market participants with important pricing information as they consider their investments and whether to lower their risk through similar transactions. Third, it brings transparency to swaps over the lifetime of the contracts. If the contract is cleared, the clearinghouse will be required to publicly disclose the pricing of the swap. If the contract is bilateral, swap dealers will be required to share mid-market pricing with their counterparties. The Dodd-Frank Act also includes robust recordkeeping and reporting requirements for all swaps transactions so that regulators can have a window into the risks posed to the system and can police the markets for fraud, manipulation and other abuses. On July 7, the Commission voted for a significant final rule establishing that clearinghouses and swaps dealers must report to the CFTC information about the swaps activities of large traders in the commodity swaps markets. For decades, the American public has benefited from the Commission’s gathering of large trader data in the futures market, and now will benefit from this additional information to police the commodity swaps markets. Lowering Risk Other key reforms of the Dodd-Frank Act will lower the risk of the swaps marketplace to the overall economy by directly regulating dealers for their swaps activities and by moving standardized swaps into central clearing. Oversight of swap dealers, including capital and margin requirements, business conduct standards and recordkeeping and reporting requirements will reduce the risk these dealers pose to the economy. The Dodd-Frank Act’s clearing requirement directly lowers interconnectedness in the swaps markets by requiring standardized swaps between financial institutions to be brought to central clearing. This week, the Commission voted for a final rule establishing a process for the review by the Commission of swaps for mandatory clearing. The process provides an opportunity for public input before the Commission issues a determination that a swap is subject to mandatory clearing. The Commission will start with those swaps currently being cleared and submitted to us for review by a derivatives clearing organization. Enforcement Effective regulation requires an effective enforcement program. The Dodd-Frank Act enhances the Commission's enforcement authorities in the futures markets and expands them to the swaps markets. The Act also provides the Commission with important new anti-fraud and anti-manipulation authority. This month, the Commission voted for a final rule giving the CFTC authority to police against fraud and fraud-based manipulative schemes, based upon similar authority that the Securities and Exchange Commission, Federal Energy Regulatory Commission and Federal Trade Commission have for securities and certain energy commodities. Under the new rule, the Commission’s anti-manipulation reach is extended to prohibit the reckless use of fraud-based manipulative schemes. It closes a significant gap as it will broaden the types of cases we can pursue and improve the chances of prevailing over wrongdoers. Dodd-Frank expands the CFTC's arsenal of enforcement tools. We will use these tools to be a more effective cop on the beat, to promote market integrity and to protect market participants. Position Limits Another critical reform of the Dodd-Frank Act relates to position limits. Position limits have been in place since the Commodity Exchange Act passed in 1936 to curb or prevent excessive speculation that may burden interstate commerce. In the Dodd-Frank Act, Congress mandated that the CFTC set aggregate position limits for certain physical commodity derivatives. The law broadened the CFTC’s position limits authority to include aggregate position limits on certain swaps and certain linked contracts traded on foreign boards of trade, in addition to U.S. futures and options on futures. Congress also narrowed the exemptions for position limits by modifying the definition of a bona fide hedge transaction. When the CFTC set position limits in the past, the purpose was to ensure that the markets were made up of a broad group of market participants with a diversity of views. Market integrity is enhanced when participation is broad and the market is not overly concentrated. Commercial End-User Exceptions The Dodd-Frank Act included specific exceptions for commercial end-users, and the CFTC is writing rules that are consistent with this congressional intent. First, the Act does not require non-financial end-users that are using swaps to hedge or mitigate commercial risk to bring their swaps into central clearing. The Act leaves that decision up to the individual end-users. Second, there was a related question about whether corporate end-users would be required to post margin for their uncleared swaps. The CFTC has published proposed rules that do not require such margin. And third, the Dodd-Frank Act maintains the ability of non-financial end-users to enter into bilateral swap contracts with swap dealers. Companies can still hedge their particularized risk through customized transactions. Rule-Writing Process The CFTC is working deliberatively, efficiently and transparently to write rules to implement the Dodd-Frank Act. Our goal has been to provide the public with opportunities to inform the Commission on rulemakings, even before official public comment periods. We began soliciting views from the public immediately after the Act was signed into law and during the development of proposed rulemakings. We sought and received input before the pens hit the paper. We have hosted 13 public roundtables to hear ideas from the public prior to considering rulemakings. On August 1, we will host another public roundtable to gather input on international issues related to the implementation of the law. Staff and commissioners have held more than 900 meetings with the public, and information on these meetings is available at cftc.gov. We have engaged in significant outreach with other regulators – both foreign and domestic – to seek input on each rulemaking, including sharing many of our memos, term sheets and draft work product. CFTC staff has had about 600 meetings with other regulators on Dodd-Frank implementation. The Commission holds public meetings, which are also webcast live and open to the press, to consider rulemakings. For the vast majority of proposed rulemakings, we have solicited public comments for 60 days. In April, we approved extending the comment periods for most of our proposed rules for an additional 30 days, giving the public more opportunity to review the whole mosaic of rules at once. We also set up a rulemaking team tasked with developing conforming rules to update the CFTC’s existing regulations to take into account the provisions of the Dodd-Frank Act. This is consistent with a requirement included in the President’s January executive order. In addition, we will be examining the remainder of our rulebook consistent with the executive order’s principles to review existing regulations. The public has been invited to comment by August 29 on the CFTC’s plan to evaluate our existing rules. This spring, we substantially completed the proposal phase of rule-writing. Now, the staff and commissioners have turned toward finalizing these rules. To date, we held two public commission meetings this month and approved eight final rules. In the coming months, we will hold additional public meetings to continue to consider finalizing rules, a number of which I will highlight. In August, we hope to consider a final rule on swap data repository registration. In the early fall, we are likely to take up rules relating to clearinghouse core principles, position limits, business conduct and entity definition. Later in the fall, we hope to consider rules relating to trading, real-time reporting, data reporting and the end-user exemption. We will consider most of the rules with comment periods that have yet to close, including capital and margin requirements for swap dealers and segregation for cleared swaps, sometime in subsequent Commission meetings. The comment period for product definitions closes tomorrow, and working with the SEC, we will take them up as soon as it is practical. As the Commission continues with its rulemaking process, the Commission is taking great care to adhere to the requirement that the public be provided meaningful notice and opportunity to comment on a proposed rule before it becomes final. Therefore, depending on the circumstance -- such as when the Commission may be considering whether to adopt a particular aspect of a final rule that might not be considered to be the logical outgrowth of the proposed rule -- the Commission may determine that it would be appropriate to seek further notice and comment with respect to certain aspects of proposed rules. For example, in response to comments received on a proposed rule regarding the processing of cleared swaps, the Commission this week re-proposed aspects of this rule regarding the prompt, efficient and accurate processing of trades. The Dodd-Frank Act set a deadline of 360 days for the CFTC to complete the bulk of our rulemakings, which was July 16, 2011. Last week, the Commission granted temporary relief from certain provisions that would otherwise apply to swaps or swap dealers on July 16. This order provides time for the Commission to continue its progress in finalizing rules. Phasing of Implementation The Dodd-Frank Act gives the CFTC flexibility to set effective dates and a schedule for compliance with rules implementing Title VII of the Act, consistent with the overall deadlines in the Act. The order in which the Commission finalizes the rules does not determine the order of the rules’ effective dates or applicable compliance dates. Phasing the effective dates of the Act’s provisions will give market participants time to develop policies, procedures, systems and the infrastructure needed to comply with the new regulatory requirements. In May, CFTC and SEC staff held a roundtable to hear directly from the public about the timing of implementation dates of Dodd-Frank rulemakings. Prior to the roundtable, CFTC staff released a document that set forth concepts that the Commission may consider with regard to the effective dates of final rules for swaps under the Dodd-Frank Act. We also offered a 60-day public comment file to hear specifically on this issue. The roundtable and resulting public comment letters will help inform the Commission as to what requirements can be met sooner and which ones will take a bit more time. This public input has been very helpful to staff as we move forward in considering final rules. We are planning to request additional public comment on a critical aspect of phasing implementation – requirements related to swap transactions that affect the broad array of market participants. Market participants that are not swap dealers or major swap participants may require more time for the new regulatory requirements that apply to their transactions. There may be different characteristics amongst market participants that would suggest phasing transaction compliance by type of market participant. In particular, such phasing compliance may relate to: the clearing mandate; the trading requirement; and compliance with documentation standards, confirmation and margining of swaps. Our international counterparts also are working to implement needed reform. We are actively consulting and coordinating with international regulators to promote robust and consistent standards and to attempt to avoid conflicting requirements in swaps oversight. Section 722(d) of the Dodd-Frank Act states that the provisions of the Act relating to swaps shall not apply to activities outside the U.S. unless those activities have “a direct and significant connection with activities in, or effect on, commerce” of the U.S. We are developing a plan for application of 722(d) and will seek public input on that plan in the fall. Conclusion Only with reform can the public get the benefit of transparent, open and competitive swaps markets. Only with reform can we reduce risk in the swaps market – risk that contributed to the 2008 financial crisis. Only with reform can users of derivatives and the broader public be confident in the integrity of futures and swaps markets. The CFTC is taking on a significantly expanded scope and mission. By way of analogy, it is as if the agency previously had the role to oversee the markets in the state of Louisiana and was just mandated by Congress to extend oversight to Alabama, Kentucky, Mississippi, Missouri, Oklahoma, South Carolina, and Tennessee – we now have seven times the population to police. Without sufficient funds, there will be fewer cops on the beat. The agency must be adequately resourced to assure our nation that new rules in the swaps market will be strictly enforced -- rules that promote transparency, lower risk and protect against another crisis. Until the CFTC completes its rule-writing process and implements and enforces those new rules, the public remains unprotected. Thank you, and I’d be happy to take questions."