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CFTC Commissioner J. Christopher Giancarlo recently delivered remarks where he stated “Unfortunately, caught up in some of the collateral damage surrounding the Dodd-Frank reforms were the traditional commodity and energy markets and the end-users who depend on them for a variety of uses. Yet, end-users were not the source of the financial crisis. That is why Congress undertook to exempt end-users from the reach of swap trading regulation. It is our job at the CFTC to make sure that our rules do not treat them like they were the cause of the crisis.”

Some of the ideas Commissioner Giancarlo discussed in support of the statement were:

  • We should not be further squeezing American Agriculture and manufacturing with increased costs of complying with rules such as 1.35, if we can avoid it. The stated purpose of the Dodd-Frank Act was to reform “Wall Street.” Instead, we are burdening “Main Street” by adding new compliance costs onto our farmers, grain elevators, and small FCMs. Those costs will surely work their way into the everyday costs of groceries and winter heating fuel for American families, dragging down the U.S. economy.
  • Another example is the Dodd-Frank definition of “financial entity.” It concerns the inadvertent capture of many energy firms as “financial entities.” As we have seen, imposing banking law concepts onto market participants that are not banks and that did not contribute to the financial crisis is not only confusing, but adds more risk to the system. It has the practical effect of preventing these firms from taking advantage of the end-user exemption for clearing or from mitigating certain types of commercial risk. Again, let’s not punish market participants who played no role in the financial crisis.
  • Unquestionably, an arbitrary 60% decline in the swap dealer registration threshold from $8 billion to $3 billion creates significant uncertainty for non-financial companies that engage in relatively small levels of swap dealing to manage business risk for themselves and their customers. It will have the effect of causing many non-financial companies to curtail or terminate risk hedging activities with their customers, limiting risk management options for end-users, and ultimately consolidating marketplace risk in only a few large swap dealers. Such risk consolidation runs counter to the goals of Dodd-Frank to reduce systemic risk in the marketplace. The CFTC must not arbitrarily change the swap dealer registration de minimis level without a formal rulemaking process.
  • I am very concerned that the effect of the CFTC’s bona fide hedging framework is to impose a federal regulatory edict in place of business judgment in the course of risk hedging activity by America’s commercial enterprises. The CFTC must allow greater flexibility. It must encourage – not discourage – commercial enterprises to adapt to developments and advances in hedging practices.
  • The CFTC is a markets regulator, not a prudential regulator. The CFTC has neither the authority nor the competence to substitute its regulatory dictates for the commercial judgment of America’s business owners and executives when it comes to basic risk management.


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