The CFTC Properly Rejects the Industry’s
Latest Preposterous Attempt to Evade Financial Reform
“The CFTC’s recent Cross-Border Advisory, released November 14th, reiterates the position contained in the July Cross-Border Interpretive Guidance that derivatives deals that directly involve U.S. persons, U.S. markets, or U.S. channels of interstate commerce fall squarely under the financial reform law,” said Dennis Kelleher, President of Better Markets, Inc., an independent nonprofit organization that promotes the public interest in the financial markets.
“The law on this issue was and is clear. Yet, a small group of powerful Wall Street broker dealers has sought to create a loophole based on a single footnote in a 300 page document to avoid the regulatory requirements that the CFTC put in place to implement the law. Ironically, the aggressive activity addressed is not conducted overseas. It is conducted in the U.S. by U.S. personnel at U.S. banks, but some banks are claiming that it is being done for their overseas affiliates so they don’t have to follow US law like everyone else. That argument is preposterous and the CFTC’s position rejecting it is entirely appropriate, indeed, required,” Mr. Kelleher said.
“The recent CFTC Advisory does not represent a change in policy or any additional regulation. It is simply a restatement of well-known law that the plain reading of the Guidance is the correct one, rather than the contrived reading argued for by certain Wall Street lawyers. It is also important to note that the Advisory was issued based on information brought to the attention of the CFTC by other market participants who were being competitively disadvantaged by the lawyers’ attempt to create a loophole for their clients. Ensuring fairness, a level playing field and the proper application of the law is precisely what the CFTC and its staff should do and did do in this case,” said Mr. Kelleher.
“Cross-border derivatives regulation is essential to ensure that risks generated abroad do not come back to the United States and risk taxpayer bailouts or crashing our financial system again. Contrary to the claims of some in the industry and their political allies, the Advisory is critical to protect U.S. small businesses, manufacturers, farmers and families, including those who travel during the holidays. Large market participants, whether based in the United States or abroad, must abide by U.S. law if the risks on their trades ultimately flow back to the United States. The situation described in the Advisory is unquestionably such a case, and this clarification is reasonable, fair and necessary,” Mr. Kelleher concluded.
Better Markets is an independent, nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets. Better Markets advocates for transparency, oversight, and accountability with the goal of a stronger, safer financial system that is less prone to crisis and failure, thereby eliminating or minimizing the need for more taxpayer funded bailouts.