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Recap: CFTC Subcommittee on Data Standardization Holds First Public Hearing

CFTC’s Subcommittee on Data Standardization, a new Subcommittee of the Commission’s Technology Advisory Committee (TAC), held its first public meeting on August 5th to discuss solutions for creating well-accepted standards for describing, communicating and storing data on complex financial products.

In his opening statement at the start of the meeting, Commissioner Scott O’Malia, who chairs TAC, stressed the importance of technology in the new market structures under the Dodd-Frank Act. O’Malia also called for concerted efforts to promote market efficiency, increase transparency and remove barriers in data standardization.

Remarks of Commissioner Scott O’Malia:

August 05, 2011

Good Afternoon. I would like to welcome everyone to the inaugural meeting of the Data Standardization Subcommittee of the CFTC’s Technology Advisory Committee.

Thank you for your commitment to serving on this important subcommittee. I often say that technology is going to be the cornerstone of the new market structures mandated by the Dodd-Frank Act. The data, execution, and reporting mandates of Dodd-Frank place us all in the center of the complex intersection of data, finance and the law, creating an unparalleled opportunity for a public/private partnership. I have asked the individuals in this room to come together with a common goal of reaching a consensus as to how we can standardize the language we use to communicate within the new regulatory landscape. I am confident that we will come up with both innovative and achievable solutions.

It is impossible to minimize with words the technological burden associated with transitioning to the greater federal oversight mandated by Dodd-Frank. The Section 719(b) study, which was unanimously approved by the Commission this past April, contains many recommendations but few mandated solutions. The window of opportunity is therefore wide open.

I hope that you will, in considering your recommendations to the Technology Advisory Committee, keep in mind the general regulatory goals of promoting market stability and efficiency, increasing transparency, removing barriers to entry, and avoiding unduly burdensome transition costs or requirements. I hope that you trust the very purpose of this enterprise: that we are very much listening, that we understand there are substantial hurdles toward data standardization, and we want your advice on how to help lessen or remove these obstacles.

In closing, I’d like to thank CFTC Chief Economist Andrei Kirilenko for chairing this subcommittee and Nancy Doyle and JonMarc Buffa for their leadership. Future public meetings of the Data Standardization Subcommittee will be held on September 30, 2011 and November 4, 2011; however individual working groups within the Subcommittee are free to and will meet at their discretion. Recommendations to the Technology Advisory Committee will be posted on the CFTC’s website at www.cftc.gov.

To read more on Commissioner Scott O’Malia’s opening statement, please visit here.

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Testimony: Commissioner Scott D. O’Malia Approves But Is Concerned with the CFTC’s Delay of Swaps Market Regulation

Last week, Commissioner Scott D. O’Malia voiced his is concern with the CFTC’s delay of swaps market regulation. On July 14, the CFTC had issued an Order clarifying the effective date of the provisions in the swap regulatory regime established by Title VII of the Dodd-Frank Act. The Order provides temporary relief from certain provisions had become effective over this past weekend (July 16, 2011) until the CFTC completes the rulemakings specified in the Order.

O’Malia’s Remarks:

“I concur with the Commission’s decision to use its exemptive authority under section 4(c) of the Commodity Exchange Act (CEA) to provide temporary relief from certain provisions of the Dodd-Frank Act. This order will provide much needed legal certainty to the market, at least until December 31, 2011, while the Commission continues its efforts to adopt final rules under the Dodd-Frank Act. Whereas I support the Commission in providing legal certainty, albeit limited, I am disappointed in the lack of harmonization between our order and the exemptive relief that the Securities and Exchange Commission (S.E.C.) provided. I am also disappointed that the final order ignored a number of comments from market participants, those that have most at stake in each of the Commission’s decisions. I hope that this order does not foreshadow the direction of final rulemakings to come.” 

To read more of O’Malia’s comments towards a “lack of harmonization” and the public’s requests for an implementation plan, please continue reading here.

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Gary Gensler's Open Statement: Meeting of the Commodity Futures Trading Commission

At the CFTC Open Meeting on July 7th, 2011, CFTC Chairman Gary Gensler, Commissioner Bart Chilton and Scott O'Malia made separate statements in support of the final Dodd-Frank rulemaking. In an opening statement  included below, Gensler announced that the CFTC had finalized five rules under the Dodd-Frank Wall Street Reform concerning market manipulation, consumer protection and swaps reporting etc.

Remarks of CFTC Chairman Gary Gensler:

July 07, 2011

Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission (CFTC) to consider issuance of final rulemakings under the Dodd-Frank Wall Street Reform and Consumer Protection Act. I’d like to welcome members of the public, market participants and members of the media to today’s meeting, as well as welcome those listening to the meeting on the phone or watching the live webcast.

During today’s meeting, the Commission will embark upon the final rulemaking phase of implementing the Dodd-Frank Act. Specifically, we will consider final rulemakings relating to:

  • Enhancing the Commission’s ability to protect against fraud and manipulation;
  • Large trader reporting for swaps on physical commodities;
  • Definition of “agricultural commodity;”
  • Preventing certain business affiliate marketing and establishing other consumer information protections under the Fair Credit Reporting Act; and
  • Expanding scope of privacy protections for consumer financial information under the Gramm-Leach-Bliley Act.

Before we hear from the staff, I’d like to thank the dedicated CFTC staff for their tireless efforts to implement the Dodd-Frank Act while also enforcing the agency’s existing statutory authority. Staff has taken on the many challenges of bringing oversight to a swaps market that is more than seven times the size of the futures market that we have historically regulated, with limited funding and limited staff resources. They should be commended for their contributions to the agency, the financial markets, the economy and the American public.

I also would like to thank Commissioners Dunn, Sommers, Chilton and O’Malia for their significant contributions to the rule-writing process.

It is important to remember why it is so essential that we finalize rules to bring oversight to the swaps market. The 2008 financial crisis was very real. Millions more Americans are out of work today than if not for the financial crisis. Millions of homeowners now have homes worth less than their mortgages. Millions of people have had to dig into their savings; millions more haven’t seen their investments regain the value they had before the crisis. There remains significant uncertainty in the economy.

The 2008 financial crisis came upon us because the financial system failed. The financial regulatory system failed as well. Though there were many causes to the crisis, it is clear that swaps played a central role. They added leverage to the financial system with more risk being backed up 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 – initially developed to help manage and lower risk – actually concentrated and heightened risk in the economy and to the public.

Today’s public commission meeting is the first of many to fully implement the Dodd-Frank Act. This spring, we substantially completed the proposal phase of rule-writing and further benefited from an extra 30 days for public comment. The staff and commissioners now are turning toward final rules. And today, we are taking up five very important rules.

In the coming several months, we will have additional public meetings to finalize rules; for example: whistleblower rules; the process for review of swaps for mandatory clearing; and the registration requirements for swap data repositories.

Each of these rules is an essential component to fulfilling the requirements of the Dodd-Frank Act to bring essential protections to the swaps markets and to the broader economy.

Before we hear from the staff on the rulemakings that we will consider today, I will recognize my fellow Commissioners for their opening statements.

To read the full text of Gary Gensler’s statement, please visit here

To read Commissioner Bart Chilton’s statement, please visit here

To read Commissioner Scott O’Malia’s statement, please visit here

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