CFTCs Gensler Heralds New Era of Swaps Market Reform

U.S. Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler announced a “new era of swaps market reform” beginning today, when new rules and regulations affecting the $650 trillion swaps market go into effect.

“The days of the opaque swaps market are ending,” Gensler began a keynote address he delivered at George Washington University on Wednesday.

Gensler’s address compared the current swaps market reform to legislation in the 1930’s that helped end the Great Depression and bring “transparency to the securities and futures markets, and protect investors from fraud, manipulation and other abuses.”

The address came amid complaints from House Republicans that the CFTC has wasted taxpayer money and caved to “ideological” aims in its pursuit of position limits rules. Gensler’s remarks on swaps market reform were broad in historical scope and were perhaps meant to create some breathing room for the agency in a highly charged political moment.

“Congress and President Obama responded [to the financial crisis] with the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and tasked the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) with bringing transparency to and lowering the risk of the swaps market – the same type of public protections that have worked for decades in the securities and futures markets,” Gensler said.

Gensler continued by outlining the nature of the CFTC’s swaps market reforms:

CFTC on Transparency

The CFTC has called for real-time public reporting and reporting to swap data repositories (SDRs) of interest rate and credit default swap (CDS) indices. Reporting for energy and other commodities is expected to begin soon, although there has been some speculation about delays on those reforms.

CFTC on Regulating Dealers

“Swap dealers will begin the process of registering and, for the first time, will come under comprehensive regulation,” Gensler said.

After registering, swap dealers will have to implement new standards aimed at lowering risk. They will also be required to use practices that “prohibit fraud, treat customers fairly, and improve transparency.”

CFTC on Clearing

The CFTC aims to bring more swaps under central clearing, which Gensler argues “lowers the risk of the highly interconnected financial system.” One of the new clearing regulations will be the LSOC (legal segregation with operational commingling) that is to be implemented by clearinghouses on November 8. This rule prevents clearinghouses from using collateral from customers who haven’t defaulted.


Gensler ended his speech with a rhetorical flourish, one that reiterated the arrival of a new era of swaps reform.

“Bright lights of transparency will shine, dealers will come under comprehensive regulation and standardized swaps between financial entities shortly will be centrally cleared. The public will benefit and our markets will be stronger in this new era,” Gensler said.

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