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July 29, 2020

CFTC: Reckless Acts, Little Protection

Recent actions by the Commodity Futures Trading Commission this month needlessly exposes Main Street Americans to more dangers from Wall Street’s derivatives dealings, which Warren Buffet correctly referred to as “weapons of mass financial destruction,” and Better Markets detailed why it was so reckless.  

Earlier in the month, the CFTC implemented final regulations setting forth a new framework for minimum capital requirements on swap dealers, and others.

Unfortunately, rather than providing the taxpayer protections and reforms as promised by the Dodd-Frank Act, the approved framework seems designed to do as little as possible while giving the appearance of improved resilience in derivatives markets. Making matters worse, the CFTC has chosen to implement this framework in a manner that unlawfully cuts the public out of the rulemaking process.

Joseph R. Cisewski, Senior Derivatives Consultant and Special Counsel for Better Markets, issued a statement with respect to the CFTC’s finalization of minimum capital requirements for swap dealers and others.

“Like misdirection leading to the prestige in a magic trick, the technical details and operation of the CFTC’s capital framework may hide a truth that will be obvious only to practitioners—namely, that the CFTC’s capital requirements may not require a significant number of swap dealers to maintain much, if any, additional capital,” says Cisewski. “In other words, it appears that the CFTC’s capital requirements in many cases merely codify the status quo while pretending to institute reforms. Equally concerning, the CFTC has determined to implement this capital framework in a manner that unlawfully cuts the public out of the rulemaking process as we explained in our comment letter to the proposal.”

Also this month, the CFTC proposed regulations governing the cross-border application of U.S. law. Dennis Kelleher, President and CEO of Better Markets, says the CFTC’s action is “one of the most reckless acts of any U.S. financial regulatory agency since the 2008 financial crash.”

Kelleher says the CFTC’s action “irresponsibly endangers the financial stability of the U.S.,  jeopardizes the safety and soundness of U.S. banks, and puts U.S. taxpayers on the hook for future bailouts as spelled out in our comment letter and this one-page summary. “ 

He adds that the CFTC’s action not “only invites Wall Street’s biggest banks to engage in regulatory arbitrage and pretend to conduct their derivatives businesses through overseas affiliates but it also outsources the protection of American taxpayers to foreign regulators who have failed repeatedly to protect their own taxpayers.”



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