Tensions at one of the top US watchdogs charged with implementing key reforms of the derivatives markets spilt into the open on Tuesday as a regulator blasted the process as having “no specific plan or strategy”.
The comments were made by Scott O’Malia, one of five commissioners at the Commodity Futures Trading Commission and one of two Republicans at the agency, which is dominated by Democrats
“I have grown increasingly frustrated with the rule making process because there appears to be no specific plan or strategy for implementing these rules,” Mr O’Malia said at a CFTC meeting to discuss the latest set of proposals on derivatives reform.
“Nor do we appear to be following president [Barack] Obama’s direction to ensure that the federal rule making process be done in the most transparent, responsible and accountable fashion,” Mr O’Malia said.
His comments are a sign that US efforts to produce detailed rules for implementing the Dodd-Frank Act, passed last year, are becoming harder as Republicans and Democrats struggle to find common ground over contentious details in the reforms.
Tension has flared between the US and Europe over different approaches to the new regulations, part of a broad commitment to reforming the financial system by G20 nations in 2009.
The Dodd-Frank Act mandates that the bulk of the $600,000bn over-the-counter derivatives markets be traded on exchanges or other types of trading platform. They are also to be processed through clearing houses where possible.
However, implementation of the act has been delayed as the CFTC and the Securities and Exchange Commission, its sister agency struggle to come up with the mass of detailed rules needed before markets can comply with the act.
The CFTC recently extended a deadline for completing its so-called “rule making” process until the end of the year, six months after an original deadline of last week, set by Congress.
Republicans, who control the House of Representatives, have in recent months pushed to delay implementation of the act, which they opposed unanimously when it was passed.
Gary Gensler, CFTC chairman, said on Tuesday: “Until the CFTC completes its rule-writing process and implements and enforces these new rules, the public remains unprotected.”
The CFTC has proposed 51 rules and finalised eight of them. On Tuesday, the CFTC voted unanimously to adopt three final rules, including one on establishing a process on how swaps are designated for mandatory clearing. It also approved two proposed rules clearing member risk management and timing of the acceptance of derivatives contracts for clearing.
Better Markets, a non-profit advocacy group, said: “The rules … are essential to move derivatives out of the shadows and on to transparent markets.”
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