Giancarlo Calls for Swaps Reform09.13.2017
The current state of global derivatives market reform in nothing but one giant gothic horror, according to US Commodity Futures Trading Commission Chairman Christopher Giancarlo who spoke before the Global Forum for Derivatives Markets 38th Annual Bürgenstock Conference.
“These regulatory flaws are like the Frankenstein monster: built with good intentions out of multiple parts, but an aberration, unnecessary, never quite working in harmony, always unnatural and misfit, and ultimately ending in doom,” he said.
Although he did not call for torches and pitchforks, Giancarlo did call for “vibrant and intelligently regulated derivatives markets” that would address US and global economic woes while not diminishing trading and risk transfer.
“We must foster safe, sound and vibrant markets for investment and risk management if we are ever to escape prolonged economic stagnation and to exorcise the specters of the 2008 financial crisis,” he added.
Turning to a second simile , Giancarlo suggested that the industry move beyond the buggy and flawed version 1.0 of swaps reform and adopt a more mature regulatory framework.
“Like software users, market participants will always look to participate in well-designed, regulatory frameworks,” he said. “Trading counterparties seek neither the least nor the most regulated marketplaces, but market places that have the right balance of sensible, objective and reliable regulation – in other words: good software.”
He also noted that the CFTC’s implementation of most of the G-20 reform should be considered as “Swaps Reform 1.0.”
“We now have more than four years of experience with its varied strengths and shortcomings,” said Giancarlo. “CFTC version 1.0 contains the basic functionality of the Pittsburgh G-20 swaps reforms, but it has some serious bugs and flaws, most critically its inhibition of robust trading liquidity, participant diversity and market vibrancy.”
Giancarlo plans to advance the cause of swap market reforms that will improve the current regulatory framework while staying faithful to the Pittsburgh G-20 reforms and in the letter and spirit of the Dodd-Frank Act.
The new regulatory framework will enhance market durability, increase trading liquidity, and stimulate broad-based economic growth and revival, he added.
A rising tide of electronic execution is improving pricing and liquidity in interest rate swaps.
New functionality enables clients to seamlessly manage credit risk as Libor use declines.
Longstanding settlement risk issues need to be ironed out.
This rule provides critically needed regulatory certainty to the global swaps markets.
Industry grow urges CFTC to retain current de minimis threshold.