Tag: Wall Street

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.

Commissioner Chilton to Leave CFTC Next Week

CFTC Commissioner Bart Chilton has announced that he will be leaving the Commodity Futures Trading Commission by the end of next week.

Chilton, who had said he would be leaving the CFTC in November, has stated that he will step down from the Commission by March 22nd.

Though he announced his departure months ago, Chilton had decided to stay on for a little longer than planned, most likely to serve as an extra hand at the commission, which would have been running with only two of the five commissioners it requires had he left.

However, now that the Senate has met with, and seems likely to accept, the three replacement nominees set to join the CFTC, Chilton may feel as though he can step down without causing any issues.

Along with former chairman Gary Gensler, Chilton was among the most vocal supporter within the CFTC for stricter position limits for traders and other largely contested rules formed from the Dodd-Frank Act.

Chilton plans to finish writing his book, “Theft” which will detail the relationship between Wall Street and Washington, telling Bloomberg in an interview “I have a book to write, and I want to get to it.”

Chilton will be succeeded by Sharon Y. Bowen, pending her likely approval from the Senate.

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.

Grain Industry hoping for More Lenient CFTC

Leaders in the grain industry discussed the future of the Commodity Futures Trading Commission (CFTC) at the Commodity Council Markets gathering recently.

With the CFTC currently going through major changes, it seems the grain industry is hoping it will lead to a more lenient Commission. And, as Mark Wetjen is currently taking over the reins, it’s very possible that this will be the case.

The CFTC has already lost chairman Gensler, and with commissioner Chilton is on his way out, the CFTC will be without its two most vocal proponents for a strict hold on the derivatives market.

Timothy Massad and Sharon Bowen, considered to be Wall Street lawyers, are currently slated to take over for Gensler and Chilton respectively, and are less likely to be as strict.

Gensler managed to push through upwards of 70 percent of all the rules the CFTC was required to write during his term according to Reuters, which will leave Massad with little more to do in terms of large scale change. And Commissioner O’Malia has stated that he is hoping that the CFTC can focus more on tweaking the rules put in place to make things easier before continuing with new reform.

The main cause of concern for the grain industry seems to be how the CFTC will be defining “hedging” which could seriously affect the way farmers use futures contracts to anticipate the buying and selling of grain.

CFTC Looks to Address Swap Report Data Issues Affecting Swap Transparency

According to the Wall Street Journal, the Commodity Futures Trading Commission is beginning to make changes to fix swap report data issues that have made it difficult to facilitate market transparency.

The CFTC will be putting together a group to review its swap report data collection process, as well as ensure that banks and other financial institutions are reporting and keeping records that are on par with the rules the Commission has put in place.

This probe into swap report data issues has been sparked by an error in reporting from the CFTC that caused the commission to miscalculate the overall size the of derivatives market.

Commissioner O’Malia has mentioned that reporting issues are widespread throughout the CFTC, and that they are hindering the Commission’s ability to oversee the market.

It may be some time before these swap report data issues are actually fixed however, as the CFTC is currently extremely underfunded. As of right now, there are only two employees in charge of rounding up all of the swaps report data, and it takes them twelve days to have the data ready to publish. This is four times longer than other reports the CFTC publishes.

Among the problems being considered in the probe, the CFTC will look into whether or not the agency needs new rules, technology, or personnel with more data analysis expertise.

Acting chairman Mark Wetjen has instructed staff to have formal recommendations prepared by June.

Senate Planning to Elect Timothy Massad as CFTC Chairman

According to the Wall Street Journal, the Senate seems likely to vote the current nominee for chairman of the Commodity Futures Trading Commission, Timothy Massad, into the position sometime next month.

Former CFTC chairman Gary Gensler stepped down earlier this month; Timothy Massad has been nominated to take over for the current interim Commissioner, Mark Wetjen.

While this clears up a bit of the uncertainty around the CFTC, there are still many concerns regarding the state of the CFTC with Gensler gone.

Gensler had a reputation for being extremely hard on banks in terms of regulation, possibly to a flaw, as his rulemaking became the subject of several lawsuits during his time. While democratic lawmakers are hoping to see Timothy Massad keep a close watch on banks, republican lawmakers are hoping to see a softer side of the CFTC.

Tomothy Massad himself has noted that he will have to be diligent in making sure the CFTC isn’t taken advantage of during this transition period. The Senate will also be voting in two other nominees as commissioners; the CFTC is currently operating with only 3 of the 5 commissioners that are supposed to run it.

Interestingly, with Bart Chilton leaving the CFTC soon, this will mark the first time the CFTC, originally created to monitor commodity trading and hedging within the agricultural industry, will be without a chairman or commissioner with a background in agriculture.

CFTC Considers Taking its Derivatives Trading Rules Overseas

According to the Wall Street Journal, the Commodity Futures Trading Commission may be looking to force the derivatives trading rules the Commission has implemented in the US onto foreign markets.

The CFTC had agreed to delay the deadline for foreign markets to comply to US trading rules while the European Commission and other foreign regulators came up with their own derivatives trading rules in hopes that they could all work together in policing the $693 trillion dollar market. However, having decided that foreign regulators haven’t been strict enough, the CFTC is now considering ignoring foreign rules, and enforcing US regulations onto all overseas entities linked to US derivative trading.

The CFTC’s continued march forward in its implementation of derivatives trading rules despite lagging foreign counterparts has drawn criticism from many who feel that doing so is an affront to the G-20 agreement to coordinate international rule-making through the Financial Stability Board.

Experts in the field also claim that forcing overseas entities to adhere to CFTC rules will cause unnecessary double reporting, which would be both time consuming and costly.

It’s interesting to see the CFTC still pursuing such strict overseas rules, as the Commission was sued just last month by US financial groups over the same matter.

The CFTC will be holding a meeting later this week to finalize their recommendations before the new derivatives trading rules go into effect.

Volcker Rule Approved by Regulators

According to the Wall Street Journal, the Federal Deposit Insurance Corp., Federal Reserve Board, Securities and Exchange Commission, and Commodity Futures Trading Commission have all voted to approve the infamous Volcker Rule.

While the vote for Volcker Rule approval was unanimous for the FDIC and the Federal Reserve, the CFTC approved it by 3-1, while the SEC approved it by a slightly narrower 3-2.

The Volcker Rule, which was proposed as a part of the Dodd-Frank Act, will implement strict rules on the banks’ ability to buy and sell securities on behalf of clients and limit compensation arraignments thought to increase risky trades.

The long contested Volcker Rule will not affect most “community banks,” smaller banks with less than $10 billion in assets. And while many considered the rule to be too harsh, it seems many of the larger banks are already in compliance with the rule, with some banks having stopped proprietary trading as far back as two years ago.

It seems investors have been largely unfazed by the passing of the Volcker Rule as well, with banks’ stocks fairing well in the market—even those considered to be heavily affected by the rule.

Any bank that is not yet fully in compliance with the Volcker Rule will have until July 2015 to comply, though they will be expected to begin making visible “good faith” efforts to comply before then.

Commissioner O’Malia on the CFTC: More Technology, Less Insanity

According to Automatedtrader.net, the Commodity Futures Trading Commission’s Scott O’Malia is hoping to see some changes to the CFTC over the next year.

O’Malia has been rather vocal in his disagreement with many of the CFTC’s moves recently, feeling that the Commission was acting overly aggressive in its rulemaking process, going as far as to call its recent attempts at cross-border trading regulation “regulatory insanity.”

Commissioner O’Malia’s sentiment may see some affirmation soon, as the several Wall Street organizations filed a lawsuit against the organization over these very rules just this Wednesday, claiming that the Commission had over stepped its boundaries, and that it did not give affected parties enough time to comment on the proposed rules before implementation.

O’Malia is hoping that the CFTC will be able to work more effectively with overseas regulators, who have also criticized the Commission’s rule making process. O’Malia would like to see the CFTC begin to slow down a bit and focus on writing up regulation more efficiently, citing the 130 exemptions and no-action letters it has had to issue over the 67 rules the Commission has implemented as cause for concern.

Outside of its rule making procedures, O’Malia has also expressed desire for the CFTC to ramp up its technology department. The commissioner feels that the CFTC is extremely outdated, and has stated that it would take the organization weeks to produce even rather basic statistics on SEF trading. As the alpha watchdog of an over 600 trillion dollar market that is constantly updating its own technology, it’s easy to understand O’Malia’s concern with the notoriously underfunded commission’s ability to keep up.

With CFTC chairman Gary Gensler, and Commissioner Bart Chilton– both of whom are considered extremely aggressive in terms of Wall Street reform– stepping down soon, it seems possible that O’Malia may very well see some of the changes he is hoping for come to fruition, though whether or not the CFTC receives the funding it needs is still anyone’s guess.


CFTC Commissioner Chilton Talks Banks, Wall Street, and Bruce Springsteen

CFTC Commissioner Bart Chilton spoke before the Society of American Business Editors and Writers in New York City earlier this month. Apparently inspired by American singer-song writer Bruce Springsteen, Chilton discussed—through Springsteen song titles– some of the causes of the financial crises of 2008, what the CFTC and the government has to do to prevent a second occurrence, and what he feels needs to happen in the future.

Chilton says a main reason for the 2008 crash was the years of deregulation of the market that had occurred before hand, allowing institutions to make enormous and complicated trades that very few people actually understood. Chilton also placed blame on the removal of the Glass-Steagall Act,  which allowed banks to make proprietary trades, leading to many of them betting against their own customers.

Chilton then goes on to talk about the CFTC and the Dodd-Frank Act, and how these new regulations have created a more transparent, safer market. He did however express concern with the Volker Rule, stating that in its current form, there are loopholes that will allow for banks to continue engaging in proprietary trading. Chilton also discusses his desire to significantly limit the banks power to own commodities, saying they have the potential to control markets by manipulating supply and demand.

Interestingly, Chilton goes on to explain that despite his criticisms, he is in fact a fan of the banks, saying that they fuel the economy, and thus, the democracy of the U.S. However, he seems rather disheartened over the amount of scandal within the banks, citing the now fourth major settlement over manipulation of the Libor rate.

In closing, Chilton mentions that the fines the CFTC enforces on these large institutions simply isn’t enough to discourage their behavior. Not even having to admit to any wrongdoing, these institutions can simply pay fines and chalk it up to the price of doing business. Chilton hopes to force an admission of guilt with settlements in the future, and urges reporters to continue to talk about these scandals, as he feels that forcing them to be accountable for their actions may be the only viable way of discouraging risky behavior.

The Full transcript can be read at CFTC.gov.