Problems With CFTC Cited at Re-Authorization Hearing

Yesterday a hearing was held to determine whether the House and Senate Agriculture committees will re-authorize the Commodity Futures Trading Commission (CFTC).  The hearing is one in a series of reauthorization hearings scheduled to occur every five years.  The biggest complaint is that the CFTC is behind schedule on implementing Dodd-Frank rules.  Specifically, commissioners cited problems with the issuance of no-action letters and the confusion surrounding swap dealer definitions. 

The first problem is that the CFTC issues too many no-action letters.  No-action letters “clarify or offer safe harbors from its Dodd-Frank rulemaking.”  In the past, no-action letters were targeted and specific, but now they are being used more often and more broadly.  The no-action letters are written by staff members who do not necessarily have the same views as the commission.  Sometimes the no-action letters offer indefinite relief, which reflects a problem with a rule that should be addressed by the CFTC.  According to one commissioner, the continued issuance of no-action letters is “depriving market participants of transparency and the opportunity to comment.”

The second problem is that the CFTC does not have a bright-line test to determine swap dealer eligibility.  Commissioners complained that the CFTC didn’t accurately interpret Dodd-Frank when it listed numerous factors to be considered when deciding if an entity is a swap dear or an end-user.  This creates uncertainty for end-users and increases the cost of hedging business risks.  A subcommittee dealing with this issue will convene today to hear from end-users.