On March 8, 2011, we submitted our Comment Letter to the CFTC (and SEC) regarding proposed federal regulations concerning the trading of swaps as part of the Dodd-Frank (financial reform) Legislation. Submission of a comment letter is part of the formal process of approving federal regulations, and we believe our input to the government is very important. This note is a summary of relevant positions advocated in our letter .
The Dodd-Frank Legislation, which is extremely broad and comprehensive in its scope, directed the CFTC (and other federal agencies) to draft and adopt regulations that essentially fill in all the details of the legislation; and Congress mandated that this new regulation be approved by mid-July 2011 (right around the corner). These new regulations may impact and affect your business. Our views, in summary, are:
- The federal regulation on swaps trading will have enormous impact on U.S. global competitiveness, markets, industry, capital formation, and job creation.
- Our technology platform, COMET, equips physical OTC energy participants with electronic tools that support efficient negotiation and execution of highly customized, nonstandard bilateral transactions.
- These transactions take the form of forward contracts involving physical settlement (e.g., natural gas), which are currently treated as “excluded” (not regulated) under the Commodity Exchange Act.
- Despite not being regulated today, our clients are choosing to be ahead of the business and regulatory curve and, accordingly, are doing business in a more efficient, transparent, and risk-mitigating fashion.
- TruMarx has interest in and the capacity to expand its business to more standardized financial energy swaps and markets.
- The best path to building a vibrant, transparent, fair, and efficient swaps marketplace is through the establishment of:
− a dynamic and competitive environment that gives market participants choices and discretion, and maintains minimal barriers to entry.
− a regulatory framework that is not overly prescriptive, that is implemented incrementally, and is based on empirical evidence and data. - We laid out in detail the historical lessons learned from the business and regulatory reforms of the listed-equities (NYSE, Nasdaq) and listed-options (CBOE) markets in the 1990s and 2000s. In those cases, competition, dynamism, and private solutions led the reform.
- We argued against specific provisions (see our letter for details) that would harm swap markets and customers.
- In conclusion, we petitioned the federal regulators to be circumspect and prudent in their task. Like the carpenter says, “measure twice, cut once ….”