CFTC Assesses Dodd-Frank Rulemaking

Terry Flanagan

Position limits and margin for uncleared swaps are among the few remaining rules under the Dodd-Frank Act, according to U.S. Commodity Futures Trading Commission chairman Timothy Massad.

“An important piece of outstanding Commission business is the position limits rule,” Massad said in an April 30 speech. “Congress mandated that we impose position limits on physical commodities to address the risk of excessive speculation.”

The agency re-proposed a position limits rule in late 2013, establishing speculative position limits for 28 exempt and agricultural commodity futures and options contracts and physical commodity swaps and amend existing regulations for aggregation under its position limits regime.

Spot-month position limits will apply separately to physically-settled and cash-settled contracts: a trader may hold positions during the spot-month in physically-settled contracts in an amount up to the spot-month limit, and may separately hold positions in cash-settled contracts up to that limit.

The CFTC has received substantial input during the notice and comment process, including through roundtables and face-to-face meetings. “I know that the provisions pertaining to bona fide hedging are an area of keen interest,” Massad said. “This is vitally important. We must make sure that market participants can still engage in bona fide hedging. And we appreciate that hedging strategies vary and are often complex. There are many other aspects to this rule that are complex, such as making sure deliverable supply estimates are based on good data. And so we are considering comments carefully and taking the necessary time to get this right.”

Another rule the CFTC is focused on is the proposed rule on margin for uncleared swaps. This would require swap dealers to post and collect margin from their counterparties on uncleared swaps, much as is required on cleared swaps.

“Our rule makes clear that swap dealers are not required to collect margin from end-user counterparties, recognizing that the activities of commercial end-users in the derivatives markets do not create the same types or degree of risk as with large financial institutions,” Massad said.

Clearinghouse oversight continues to be a chief priority, said Massad. The CFTC is working with fellow regulators, domestically and internationally, on the planning for a possible clearinghouse failure.

“In this post-global financial crisis world, clearinghouses play an even more critical role than before,” he said. “The CFTC is focused on having strong examination, compliance, and risk surveillance programs.”

As part of its focus on clearing, the CFTC has stepped up efforts to make sure futures commission merchants safeguard customer funds and meet their financial obligations to clearinghouses, Massad said. The CFTC requires FCMs to make daily reports demonstrating compliance with the segregation obligations, and to provide notice to us of certain withdrawals of funds from the customer segregated accounts. Depositaries holding customer funds also are required to confirm balances on a daily basis, so that it is possible to verify that the funds that FCMs report as being held for customers are, in fact, on deposit.

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