CFTC Commissioner Dawn Stump encouraged regulatory coordination on CCP oversight, swap data reporting and the CFTC's cross-border guidance.
In an address at the ISDA Annual Europe Conference, Ms. Stump focused on the following four topics:
CCP Oversight. Ms. Stump called for a stronger alliance among regulators, including a "willingness to defer" when regulating and supervising cross-border CCPs. Ms. Stump highlighted two recent CFTC proposals: (i) the Exempt DCO Proposal and (ii) the Alternative Compliance Proposal - in particular, the standards for determining to what extent the CFTC should defer to a CCP's home country regulator. Ms. Stump questioned the ESMA's proposed approach to determining whether a CCP is "systemically important" and ESMA's use of "fourteen indicators" rather than the numerical figures used in the CFTC proposal.
Swap Data Reporting. Ms. Stump noted the CFTC proposal on confirmation of data was submitted to swap data repositories. She said the CFTC should, in future proposals, take a "holistic view" of the swap data reporting regime including significant harmonization with non-U.S. regulators.
Cross-Border Guidance. Ms. Stump criticized the 2013 CFTC cross-border guidance, and said that she believes that certainty and reliability through regulations is the "more prudent course."
Initial Margin for Swaps. Ms. Stump noted that at its next meeting (Sept. 24), the Global Markets Advisory Committee will advise the CFTC regarding various documentation and preparation challenges for firms transitioning into initial margin requirements.
Commentary
Commissioner Stump's criticism of the ESMA approach echoes similar criticism made by CFTC Commissioner Brian Quintenz when the CFTC issued its proposal (see proposal at p. 34835). The question as to the right approach is one of regulatory philosophy. Ms. Stump and Mr. Quintenz prefer a mostly fixed figure, with Ms. Stump acknowledging that the CFTC proposal also grants the CFTC discretion to make determinations when an entity's numbers are near the relevant thresholds. In contrast, CFTC Commissioner Dan Berkovitz disagreed with this approach (at p. 34837 of the proposal), calling it an "activity based" test rather than a "risk" test. He suggested the CFTC did not do enough to explain how it came to conclude that the proposed figures appropriately measure risk.
As with other measurements of this kind (e.g., the dealer de minimis thresholds for swap dealer status), it's a bit of a Goldilocks problem. Mr. Berkovitz is right that the CFTC should better explain why its test is appropriate and what alternatives were considered (as Mr. Quintenz has urged it to do for the de minimis dealing threshold). But Ms. Stump is right that the "factor" model proposed in Europe (similar to the statutory SIFI designation process in the United States) swings too far in the direction of government discretion.
The government should provide predictability and simplicity where possible in order for market participants to know when registration is required. At the same time, the relevant figures should appropriately take into account Congressional mandates and make clear why the selected thresholds are appropriately tailored to the objectives of the regulation.
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