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January 14, 2015

Statement on the SEC’s Rulemaking Today, including key provisions regarding Chief Compliance Officers

Washington, D.C., January 14, 2015  – Dennis Kelleher, President and CEO of Better Markets, issued the following statement on today’s SEC votes adopting rules to implement the new reporting framework for transactions in security-based swaps:

“The SEC should be applauded for taking strong action today on a number of critical issues that should reduce the risk of future financial crashes, crises, and bailouts, although we will need to review the actual language of the rules when they become publicly available.  For example, one of the new rules finalized today includes measures to protect and promote the critically important compliance function within the Swap Data Repositories (SDRs), which are the entities responsible for gathering and reporting trade data. In particular,

  • the rule makes clear that Chief Compliance Officers (CCOs) will be independent from the SDR’s corporate executives and officers, and may only be hired, fired, and have pay set by a majority of the board of directors, rather than internal executives;
  • the rule also prohibits SDR staff from providing false information to the CCO or manipulating or coercing the CCO, and it subjects staff at all levels to liability for making untrue statements.

“These actions empower key gatekeepers like CCOs and have the potential to be transformative in reducing fraud and illegal activities at financial firms. As demonstrated in the years before the financial crash and since, company executives with power and influence over CCOs have corrupted the compliance function and subordinated it to profits and bonuses.  That is why Better Markets advocated for stronger CCO protections in 12 comment letters and innumerable meetings since 2011.

“The SEC deserves credit for other provisions as well, because it appears that the rules will:

·       require broad use of Legal Entity Identifiers, an important step toward standardizing data and making it more useable;

·       help prevent U.S. parent companies from structuring SBS transactions through their foreign affiliates to avoid the data reporting requirements; and

·       prohibit, under a proposed rule change, registered SDRs from charging fees or imposing restrictions on users of the SBS transaction data that they are required to disseminate publicly.

“However, the news from the meeting was not all good.  In particular, the SEC failed to require real-time reporting which is what the Dodd-Frank Act intended and what we need to ensure fair and competitive markets.  This also reduces the SEC’s ability to oversee these markets for abuses and for the build-up of systemic risk.

“The rules will allow a 24-hour trade reporting delay, which is a 19th-century, horse-and-buggy standard for 21st century markets that move faster than the speed of light.  24 hours simply is not real-time.

“The SEC said this non-real time reporting period was ‘interim’ pending receipt of market data and further study of trading patterns.  We hope that the SEC will act quickly to gather the necessary data, address any appropriate exceptions for legitimately large trades in specific markets, and implement a genuinely real-time reporting requirement.

“We look forward to reading the rules when they are published and working with the SEC in moving forward on these and other rules, which are essential for protecting investors, markets, taxpayers, our financial system and our economy from another devastating financial crash and economic catastrophe.”

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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. To learn more, visit www.bettermarkets.com.

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