WASHINGTON, D.C. — Dennis M. Kelleher, Co-founder, President and CEO of Better Markets, issued the following statement in response to a report that the Commodity Futures Trading Commission’s (CFTC) Acting Chair, Caroline Pham, is preparing to vote on whether to allow U.S. customers to clear yen interest rate swaps through a noncompliant foreign financial firm, the Japan Securities Clearing Corporation:
“The CFTC is reportedly considering whether to allow a foreign clearinghouse to handle business with U.S. customers without requiring it to follow the same rules that U.S. clearinghouses are required to follow. This would be deeply irresponsible because it would create an unlevel playing field and discriminate against U.S. clearinghouses which would continue to be required to follow U.S. rules. It would drive U.S. clearinghouses to open noncompliant subsidiaries in foreign jurisdictions and clear their customers’ derivatives trades through them rather than through U.S. entities that employ U.S. personnel.
“Such an action would also eliminate critical customer and market protections required by the U.S. rules. Thus, the CFTC is considering driving U.S. businesses and U.S. jobs overseas while depriving U.S. customers of basic protections. Adding insult to injury, the CFTC is considering doing this at a time when it only has an Acting Chair who is returning to the private sector soon, when it only has two rather than five commissioners, and through an exemptive order rather than following transparent procedures that allow the public to be informed and comment on such a consequential change.
“Clearinghouses are carefully regulated because they are systemically significant and provide vital customer and markets safeguards. The CFTC’s contemplated actions would dismantle the long-standing protections that bar U.S. customers from clearing through foreign central counterparties without equivalent regulatory rules. In 2021, the CFTC’s own final rule explicitly rejected this exact proposal due to the very serious and real concerns about customer fund protections, foreign bankruptcy regimes, and the potential systemic risks of allowing large positions to build up in overseas markets beyond U.S. oversight. These concerns are as serious today as they were in 2021, and the CFTC has no basis to move forward with this dangerous action.
“Acting Chair Pham’s reported push to approve this exemption is irresponsible if not reckless. This potential action appears to be part of her final push to leave behind sweeping but damaging policy changes before her imminent departure, potentially to an industry job that will benefit from this or any number of her other unwise actions as Acting Chair. From allowing 24/7 derivatives trading without proper public input, sports betting-style contracts in regulated markets, and promoting crypto, to reorganizing and reprioritizing enforcement, removing the head of H.R., and now fast-tracking exemptive foreign clearing access, she seems determined to dismantle key safeguards on her way out the door.
“The CFTC should be focused on strengthening market resilience, not weakening its oversight framework to accommodate foreign clearinghouses, and certainly not to the detriment of U.S. financial firms, U.S. jobs, and U.S. customers. Granting this exemption would open the floodgates to similar requests from overseas entities, resulting in the de facto repeal of the clearinghouse rules and regime that have worked well and protected Americans for decades. The CFTC must not pursue this baseless and damaging proposal.”
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Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
