CFTC Derivatives Implementation a 'Train Wreck': Garrett

WASHINGTON — The House Financial Services Committee had tough questions for the Commodity Futures Trading Commission on Wednesday over its implementation of derivatives provisions laid out in the Dodd-Frank reform law.

CFTC Chairman Gary Gensler, and Robert Cook, director of the division of trading and markets at the Securities and Exchange Commission, appeared before the panel's subcommittee on capital markets and government-sponsored enterprises to discuss how each agency is addressing concerns over the derivatives market and its process for putting mandates from the reform law into place.

But lawmakers focused most of their attention on the CFTC, raising concerns that some are being driven out of the swaps market because of the agency's changes.

"The entire implementation… by the CFTC has been an absolute train wreck," said Rep. Scott Garrett, chairman of the subcommittee, during his opening remarks.

Republicans pressed Gensler on a number of issues, including the CFTC's decision to issue interpretative guidance instead of regulations in some cases and its work with both foreign and domestic counterparts, including the SEC.

"There's the constant discussion of harmonization between U.S. regulators and foreign regulators. And often we're concerned, is there harmonization between the two of you both — in the approach, methodology, use of language in the regulations? Because many of us expect to see a more complex world coming into swaps," Rep. David Schweikert, R-Ariz., said to Gensler. Schweikert will not be returning to the banking panel next year.

Democrats also had questions over the CFTC's work, including over how to deal with cross-border risks in derivatives markets.

"Our hearing today will begin to get into the details with regard to some of the rulemakings the CFTC and SEC are now conducting, particularly with regard to how swaps regulation will extend across U.S. borders," said Rep. Maxine Waters, D-Calif., ranking member of the subcommittee, in opening remarks. "On this point, I think it is important that we be sure not to import unregulated risk back to the United States, while also recognizing some of the legitimate concerns raised by market participants, including a lack of harmonization between the SEC and CFTC; challenges raised by the faster implementation timeline in the U.S. relative to the European Union and Asia, as well as a lack of global harmonization and a lack of clarity regarding implementation dates."

Rep. Brad Sherman, D-Calif., noted that he was concerned about the agency's budget, asking if it was underfunded and thus constraining regulators' work, but also pushed Gensler on the agency's decision to delay compliance deadlines right before they are set to go into effect.

"You've got market participants who are trying to complete the work ahead of a compliance date and then at the eleventh hour the date is extended. Certainly it'd be better if the date were extended prior to the eleventh hour," he said.