Speaking to a European audience, a Commodities Futures Trading Commission (CFTC) commissioner called for regulatory harmonization among global derivative regulators.
Speaking to the Eurofi High Level Seminar 2017 in Malta, CFTC Commissioner Sharon Bowen said that global regulators must “harmonize” on regulations in three areas: 1) market data; (2) enforcement; and (3) clearing.
“One area in which we need harmonization, and not fragmentation, is in the exchange of market data. At the Pittsburgh meeting of the G-20 in 2009, one of the fundamental goals that international regulators agreed upon, in the midst of the 2008 crisis, was that all swaps should be reported. In the U.S., as in many of your jurisdictions, under our current rules, all swaps transactions, whether cleared or uncleared, must be reported to a trade repository.” Bowen said, “Sharing data is also essential for analyzing market risk. For example, at the CFTC, we use margin, as one indication of risk. We regularly review the amount of margin outstanding, and analyze the likelihood that market counterparties can meet their margin requirements under a variety of past and hypothetical market movement scenarios. But without a full picture of the global market, we can get a skewed view of the actual risk profile of counterparties. We may think that a counterparty has a lot of one-way risk, when a full picture would reveal a much more balanced portfolio. The opposite is also true: we may have a false sense of security, when in fact there is cause for concern. Thus, our ability to mitigate systemic risk is hampered by insufficient data; and so is yours. We need each other to address this.”
On the issue of enforcement, Bowen said: “As regulators, it is in our best interest to share information about potential bad actors that are moving from market to market harming customers, lessening efficiency and bringing otherwise functional markets into disrepute. It is all too easy today for a malfeasant in one jurisdiction, who is dismissed, to pick up and move to another jurisdiction and continue working.”
On the issue of clearing, Bowen also showed a globalist view: “One of the other lessons learned from the 2008 crisis, which was highlighted by the G-20 in 2009, was that well-regulated clearing can be a powerful tool to stem systemic risk. Unlike many other parts of our economies, clearinghouses performed exceptionally well during the crisis. Why are clearinghouses so important in countering systemic risk? Because clearinghouses serve as a vital means to appropriately manage collateral requirements while also providing regulators with clear, timely visibility into these markets. Clearing thus shines much needed light on a previously dark sector of the market.”
The Eurofi Conference brings together powerbrokers from the world of financial services.
Bowen noted that her remarks were her thoughts and not necessarily the thoughts of the CFTC and they contrast sharply with the view of President Trump, who has been skeptical of the globalist view.
Bowen is a Democratic holdover from the Obama administration who remains at the CFTC; she was confirmed for a five-year term in 2014.
There are five commissioners on the CFTC.