The Futures Industry Association’s Law and Compliance division hosted the two new commissioners for the Commodity Futures Trading Commission (CFTC) this afternoon; and the commissioners discussed issues currently confronting the regulator, issue number one being the reauthorization of the regulator.
While operations have not been interrupted, the CFTC has been operating under a temporary budget. Reauthorization is being held up for a number of reasons, including a push to regulate exempt commercial markets (ECM) such as the Intercontinental Exchange Inc., which has been found to serve as a price discovery mechanism, specifically for Henry Hubb natural gas, and a desire to regulate the retail forex industry.
Commissioner Jill Sommers also addressed the issue of portfolio based margining and said that she supports a “two pot” solution, in which risk based margining is available across a securities account and futures account, and rejected a “single pot solution,” which she says would require legislative changes to the Securities Investor Protection Corporation (SIPC).
Commissioner Bart Chilton, the other new commissioner, quipped that the CFTC “is not your father’s regulator.” He also stressed his support for principles based regulation, which he characterized as more flexible than a “top down, prescriptive” approach towards market regulation, noting that under the current regime, new products can be launched with a simple notification, rather than a six-to-nine month waiting period. He credited principle based regulation with playing a role in recent industry growth.
Chilton defended the CFTC’s exclusive regulation of futures markets in the wake of the jurisdictional tug of war stemming from the Federal Energy Regulatory Commission’s (FERC)action against hedge fund Amaranth Advisors LLC and its lead trader Brian Hunter. Chilton expressed disappointment that FERC has muddied the process in taking the Energy Policy Act out for a jurisdictional “test drive,” adding, “It’s disappointing.”
He also commented that the enforcement division of the CFTC is more Eliot Ness than Barney Fife, and when it comes to shutting down bad guys, they are more like the Terminator.
By Chris McMahon
Tags: Amaranth, Bart Chilton, CFTC, Jill Summers, reauthorization
