U.S. Commodity and Futures Trading Commission (CFTC) member Bart Chilton has stated that Swap Execution Facilities are here to stay. In an address delivered to Risk USA 2012, Chilton discussed future swaps rules expected by December 31, 2012.
“This challenge is really different from just about any experiment we’ve ever conducted. It’s not like drafting regulations for the securities and futures markets that were already well-established when rules governing them were put in place,” Chilton said of swaps regulation.
The CFTC has been under fire of late, from international regulators, Republican congressman, industry lobbyists, and even its own commissioner Scott O’Malia, for causing confusion over swaps regulation.
Addressing the difficulties of swaps regulation, Chilton stated:
“In this instance, while we had a robust swaps market in the U.S., prior to Dodd-Frank, we did not have a system making the platforms registered entities. Therefore, it’s been a challenge to design the right rules, to carry out the intent of Congress and to ensure that systems intended to be covered by the law are not over- or under-regulated.”
Chilton also addressed looming rules from the CFTC on swaps, and in particular, swap execution facilities (SEFs). SEFs are trading platforms on which multiple participant interacts with the trading interest of more than one other participant on the system. They are an attempt to increase transparency and efficiency while reducing systematic risk in over-the-counter (OTC) derivatives markets.
“For me, ensuring that existing systems, like appropriate voice brokerage, can continue to be used in the SEF environment, is crucial. I also want to ensure that processors—those folks who were truly just facilitating trading, not actually hosting the trading—don’t fall under the SEF umbrella.”