Tag: house

Massad Says CFTC Hampered by Budget Constraints

Recently appointed CFTC Chairman Tim Massad announced last week that there were “a lot of things” he would like to do to continue the CFTC’s goal of regulating financial markets, but that he is held back by strict congressional budget constraints. Referring to the CFTC’s role in promulgating regulations under Dodd-Frank, Massad pointed out, “Our budget hasn’t really increased very much, and yet we were given vastly expanded responsibilities in terms of the markets we cover.” Pointing to a shortfall in staff necessary to carry out the CFTC’s mandate, Massad stated that the CFTC was forced to “rely heavily on the [financial] industry to regulate itself.”

The CFTC’s budget woes have been exacerbated by House Republicans, who will not approve funding requests by the agency and by the White House, even while House Democrats claim that their congressional counterparties are trying to scuttle Dodd-Frank. The CFTC’s current budget is $215 and is unlikely to increase in the next fiscal year.

Massad, who had previously overseen the Troubled Asset Relief Program (TARP) assured that he would be able to improve staff morale at the CFTC. Quoting Theodore Roosevelt, Massad said that he tells staff, “We’re going to do what we can with what we have.”

Congresswoman Urges Review of Bank Guarantees of Offshore Affiliates

Maxine Waters, ranking member of the House Financial Services Committee, urged the CFTC this week to begin investigating the offshore actions of Wall Street banks in avoiding certain mandates set forth in the Dodd-Frank Act. In a letter to Timothy Massad, the CFTC’s recently-confirmed chairman, Representative Waters criticized the removal by banks of parent guarantees from overseas affiliates, which allows banks to trade in the interdealer market while skirting Dodd-Frank restrictions aimed at increasing price competition and transparency. By cutting off these guarantees, banks are able to trade in the United States through swap execution facilities established under Dodd-Frank, while their non-guaranteed subsidiaries are subject only to local laws of foreign jurisdictions.

Rep. Waters also sent letters to the Federal Reserve, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Federal Deposit Insurance Corporation. In these correspondences, Rep. Waters reiterated that the CFTC should take a more aggressive stance in reviewing changes to the guarantees.

Judge OK’s DTCC CFTC Lawsuit

A US federal judge has ruled that part of a lawsuit filed by Depository Trust & Clearing Corp (DTCC) against the Commodity Futures Trading Commission (CFTC) will be allowed to proceed.

The DTCC CFTC lawsuit was filed by the DTCC over the how the CFTC allowed CME Group Inc and IntercontinentalExchange to gather market data.

The DTCC had actually filed 4 claims against the CFTC in the lawsuit. However, US District Judge Amy Jackson dismissed three of them, citing that the court could not review claims that did not involve a final action by the CFTC. Two of the claims involved actions approved via the CFTC’s “self-certification” process, with a third being about changes made the frequently asks questions section on the CFTC’s website.

The Dodd-Frank Act requires all trade data for over-the-counter derivatives  to be stored in swap data warehouses for easy monitoring. The DTCC is suing the CFTC for allowing CME Group Inc and IntercontinentalExchange to use their own proprietary data warehouses. The DTCC, which operates its own rival data warehouse, has claimed this to be anticompetitive.

With this being the main purpose behind the DTCC CFTC lawsuit, it seems the DTCC is happy to be able to move forward, even without the other aspects of the suit. A member of the DTCC tell Reuters, “We are pleased that the judge has given the green light to the core of our case. We continue to believe that CME Rule 1001 is anticompetitive and undermines the core pro-competitive principles of the Dodd-Frank Act.”

US CCPs Feeling Confident over EC Approval

US central counter parties (CCPs) seem to be gaining confidence that the European Commission (EC) will overlook differences in their clearing house rules, preventing US CCPs from losing European clients.

The rules set out by the European Market Infrastructure Regulation (Emir) vary from those followed by US CCPs. While EMIR requires  a minimum holding period for futures margining in Europe to be two days, its only one in the US, for example.

Because of this and a list of other differences, US CCPs have been concerned over whether or not they would be prevented, or at least delayed, from being approved by the EMIR as qualified CCPs in Europe.

However, it seems these fears are being put to rest as things begin to move forward. Perhaps one of the biggest factors in this is the Commodity Futures Trading Position’s new attitude toward working with European regulators after the departure of previous chairman Gensler.  The CFTC has recently agreed to allow US entities to trade on European platforms, provided they meet certain standards.

Because of this, many are now assuming that the EC will be much more inclined to allow US CCPs that have adopted similar internal practices to Europe’s to qualify.

Democrats Support New Change to Volcker Rule

The Volcker rule may be getting tweaked once again.

The banking industry has been pushing to have a group of debt investments omitted from the Volcker rule, saying that they differ from the types of investments that the Volcker rule was designed to regulate. And it seems likely that they may be getting their way as House officials recently signed a letter looking for guidance from financial regulators on how to go about doing so.

Maxine Waters (D., Calif.) and Carolyn Maloney (D., N.Y.), senior members of the House Financial Services Committee are among the 17 House Democrats who signed the letter, asking regulators to clarify that collateralized loan obligations (CLOs) aren’t necessarily equity investments.

As the Volcker rule is currently written, CLOs can fall under its regulation if it has any of the characteristics of an equity investment. The letter requests that regulators look to exempt CLOs from regulation in some of those cases, though it also points out that there may be instances where regulating CLOs could be required.

Should the Volcker rule not be changed, banks will have to divest their CLOs before the it goes into effect in 2015, according to the Wall Street Journal.

However, with the CFTC under new, seemingly much more lenient management, it’s unlikely that this will be an issue.

UK Challenge to Short-Selling Law Dismissed by EU Court

According to Reuters, the UK’s attempt to challenge a short-selling law that bans the ability to short-sell shares during market emergencies has been denied by a European Union Court.

Attempting to limit the reach of financial rules designed to regulate the industry, the UK had challenged a part of the short-selling law that grants the European Securities and Markets Authority (ESMA) power to ban betting on falling share prices when the ESMA deems it a threat to either markets or financial system stability.

In order for the UK to challenge the short-selling law, those involved stated that the law overstepped the ESMA’s boundaries based on an EU treaty provision. However, because the ESMA can only enforce this law if national leaders haven’t taken action to deal with disorderly markets, the court ruled against this claim.

Short-selling involves the selling of borrowed shares with the hopes of buying them back at a lower price later.

Britain will also be challenging rules that involve bonus caps for bankers, a financial transaction tax, and the forcing of clearing houses to be moved to the euro zone by the European Central Bank in the near future.

Singapore Exchange Granted Clearing Certification by CFTC

According to the Financial Times, US regulators will now allow the Singapore Exchange to clear over-the-counter derivatives trades for American customers. This makes the Singapore Exchange the first Asian exchange to be granted this certification.

After the 2008 finical crises, the US passed the Dodd-Frank Act in order to help police the derivatives market, which is often cited as a major cause of the crisis. One of the requirements of the Dodd-Frank Act is that derivative trades be processed through clearing houses like the Singapore Exchange, guarding the market against any negative impacts that could occur should one of the parties of a trade default.

With this approval, the Singapore Exchange can now offer US traders local clearing services for products like iron ore swaps, interest rate swaps and non-deliverable foreign exchange forwards.

Approval for the Singapore Exchange came just as the Commodity Futures Trading Commission and the Monetary Authority of Singapore agreed to work together in supervising financial institutions that will involve both US and Singapore derivative markets.

Singapore is expected to mandate all trading be cleared through clearing houses sometime after the middle of 2014, bringing it up to pace with US and European regulations.

The Singapore Exchange is still waiting on similar approval from European regulators.

House Passes Bill to Weaken Dodd-Frank Act

According to Bloomberg, an amendment to the Dodd-Frank Act was passed on Wednesday that would limit the extent to which the rule would affect large banks. The bill would essentially remove the “swaps push out” aspect of the rule, which forces banks to move their derivatives activity to affiliates that don’t have access to deposit insurance or discounted borrowing.

The initial purpose of the push out provision was to help guard against some of the riskier trading done by banks and prevent a situation similar to the financial crisis of 2008. However, both banks and regulators like Federal Reserve Chairman Ben S. Bernanke have warned that if the Dodd-Frank Act isn’t amended, swaps trading may begin to shift to less regulated entities.

The amendment would allow what some are calling more basic derivatives trading to occur, while not affecting more complex and riskier trades.

While the bill has passed in the House with bipartisan support, it seems likely to be more of a token gesture, as chances of it passing through the Democrat- majority Senate are very slim. The White House has also expressed contention with the bill, stating that it’s not the time to make amendments, as the focus should be on actually finishing the implementation of the Dodd-Frank Act. For now, banks should continue to make preparations to adjust to the rule as it currently exists.

Federal Reserve to Delay Commodity Regulation until Next Year

According to Reuters, it seems unlikely that the Federal Reserve will be detailing their plans on commodity regulation until after next month’s Senate hearing over the rigging of the aluminum market. A final decision on commodity regulation should be expected early next year.

After receiving complaints from MillerCoors, the Federal Reserve is looking into a decade old rule that allows large banks to trade physical commodities. According to MillerCoors and other large aluminum manufacturers, banks trading stocks in aluminum were driving up the price through their control of warehouses.

Although they are waiting until after the hearing to move forward, the Federal Reserve will not be taking market manipulation into account, leaving the issue up to the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC).

The review of commodity regulation rules has many banks feeling the heat. Many feel that the Federal Reserve will implement new rules that will drive up the cost of business for trading. This fear has already led some banks to sell their positions and give up on the physical commodities industry all together.

The Federal Reserve will also not be doing much to change the significant amount of scope in the industry some banks have over others. Banks who changed their status to bank holding companies allowed them to grandfather in their commodity trading activates, including the storage and transportation of commodities, saying that they may change some orders, but are unlikely to change the law as a whole.

Debt Ceiling to Impact Global Economy, Regardless Of Default

As the U.S. government shutdown continues with little progress being made towards reaching any sort of consensus between Democrats and Republicans, the U.S. is coming closer and closer to defaulting on its loans. And, according to the Huffington Post, experts are saying that even the threat of a default may cause panic in the market place.

The government shutdown, which started over the House’s inability to come to an agreement on the Affordable Care Act, has since changed trajectory and is now a fight over how the government will pay down its debt, and under what terms will the debt ceiling be raised.

The market is already seeing effects with the price of insuring a one-year treasury bond rising to a staggering .38 percent of the bond.

Many government officials have stated that the U.S. can avoid default for longer than the originally projected Oct. 17th date by “prioritizing” its bills, as in forgoing social security payments to pay interest on bonds. However, experts warn that this would do little to help the economy, saying that at best, U.S. interest rates will rise, causing layoffs and higher prices for American consumers. Some warn that missing the deadline could be as– if not more– disastrous than the bankruptcy of Lehman Brothers, which triggered widespread panic in the global market, bank failures, and a deep recession.