Fresh on the heels of being nominated by the White House Tuesday to be Chairman of the US Commodity Futures Trading Commission, J. Christopher Giancarlo spelled out plans to reorganize the agency and "right-size" its regulatory footprint.
"The overly prescriptive regulation of American derivative markets is a part and parcel of the over-regulation of the US economy that thwarts revival of American prosperity," he said in a speech prepared for delivery at the International Futures Industry conference in Boca Raton, Florida, Wednesday.
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While promising a new emphasis on swaps market rules that ensure liquidity needs are met, and steps to listen more attentively to concerns of market participants, he also warned the market that enforcement will not ease on those who may seek to cheat or manipulate the markets.
"There will be no pause, let up or reduction in our duty to enforce the law and punish wrongdoing in our derivatives markets. The American people are counting on us," he said.
To carry out one of President Donald Trump's executive orders of regulatory reform, Giancarlo announced the launch of an agency-wide review of CFTC regulations and practices "to make them simpler, less burdensome and less costly," and said the CFTC will seek public comment on that effort.
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The regulatory reform initiative, dubbed Project KISS for "Keep It Simple Stupid" will be led by Mike Gill, Giancarlo's chief of staff, who will serve as the "regulatory reform officer."
Giancarlo emphasized that the effort is not about finding rules to "repeal or even rewrite," but rather about "taking our existing rules as they are and applying them in ways that are simpler, less burdensome and less of a drag on the economy."
Offering some details of a reorganization at the agency, he described plans to house market surveillance within the Division of Enforcement and to revamp the Division of Market Oversight as a market intelligence branch focused on analyzing derivative market dynamics developments and trends. To that end, elements of the current market surveillance branch would move from DMO to the enforcement office.
"The overall goal is to make the CFTC more adept [at] each of the two disciplines," he said.
CFTC will also appoint a chief market intelligence officer reporting to the chairman with the goal of "giving us better insight into the needs of participants in the futures and swaps we oversee," he said. That change aims to add insights into the needs of futures and swap market participants and help the public understand why risk transfer markets are important, he said. "We will not be able to enact the policy reforms we need unless the public has a better understanding of why they are vital to economic growth."
After the "breakneck pace" of the CFTC regulatory efforts driven by Dodd-Frank mandates, Giancarlo said it is time to get back to "regular order."
"That means a return to greater care and precision in rule drafting, more thorough econometric analysis, less contracted time frames for public comment and a reduced docket of new rules and regulations to be absorbed by market participants," he said. The agency will also work to minimize the costs borne by regulation, he said.
With the Trump administration poised to release details of its budget this week, Giancarlo also espoused the value of doing more with the agency's existing funding, and said his own review has already found areas in which the agency can run more efficiently.
"Before we can ask the people's representatives for more of our citizen's hard-earned dollars, we must first know where we're spending every nickel and dime and how we might manage to save a few."
Giancarlo also reiterated his vision for an altered approach to regulation of swaps and other derivatives, as discussed in a speech earlier this week. He advocated for turning away from focusing on preventing the last financial crisis toward remedying liquidity impacts and sidelining of capital he sees as resulting from the regulatory regime that followed the 2008 financial collapse.
He also discussed his concern that measures taken by the CFTC and other agencies that have negatively impacted trading liquidity.
"The time has come to recalibrate bank capital requirements to better balance systemic risk concerns with healthy economic growth and American prosperity," he said, while also reiterating his view that CFTC swap rules have created distinct liquidity pools that make markets less resilient to shocks.
As an example of the type of role he'd like the US to play, he mentioned the CFTC's "recent leadership" in February to allow a six-month grace period for swap dealers to come into compliance with variation margin requirements for uncleared swaps that were set to apply March 1.
--Maya Weber, firstname.lastname@example.org
--Edited by Jonathan Dart, email@example.com