CFTC's Chilton Seeks Enforcement Delay on Swaps Rules

End users should get 6 months before sanctions are imposed, commissioner says.

The U.S. Commodity Futures Trading Commission should refrain from sanctioning so-called end-users of swaps for six months while the agency seeks to clarify its Dodd-Frank Act rules, Commissioner Bart Chilton said today.

Commercial and energy companies deserve a more transparent rulemaking process that provides greater certainty, Chilton said in comments prepared for a telephone news conference to propose what he called an End-User Bill of Rights.

“Dodd-Frank needs to be implemented and needs to be implemented quickly, but that does not mean it should be done so harshly,” Chilton said in a statement prepared for the news conference. “End-users and other market participants should have little doubt as to the status of their activities.”

Chilton, one of three Democrats on the five-member CFTC, said he won’t vote until Oct. 31 to approve enforcement action against any end-user making an effort to comply with the rules being imposed under Dodd-Frank, the 2010 regulatory overhaul.

Derivatives provisions of Dodd-Frank were enacted to give regulators more oversight of the $639 trillion global swaps market after largely unregulated trades helped fuel the 2008 credit crisis. The CFTC and Securities and Exchange Commission were authorized to write rules requiring that trade information be reported to so-called swap data repositories that function as central record-keepers.

The rules are failing to give regulators a full picture of the swaps market and wouldn’t help them detect a loss similar to JPMorgan Chase & Co.’s London Whale trades, Scott O’Malia, a Republican CFTC commissioner, said March 19. The information isn’t usable in its current form and has overwhelmed the CFTC’s computer systems, O’Malia said. The CFTC has approved three databases operated by the Depository Trust and Clearing Corp., CME Group Inc. and Intercontinental Exchange Inc.

The CFTC has set an April 10 deadline for reporting of information about trades involving end-users. Chilton called on the agency to give the firms a six-month delay for reporting historical information.

Energy and commodity traders have pressed the CFTC to grant a delay in the reporting requirement, arguing that the rules are burdensome and the databases are still implementing their procedures.

“Even today, certain questions remain unanswered regarding transactions that might qualify as swaps,” the Commercial Energy Working Group said through lawyers at Sutherland Asbill & Brennan LLP in a March 1 letter to the agency seeking a six-month delay.

Lobby groups representing Barclays Plc, JPMorgan Chase & Co. and Goldman Sachs Group Inc. have also urged that the CFTC delay the reporting rules for their clients. In a March 28 letter to the CFTC, the International Swaps and Derivatives Association Inc. and Financial Services Roundtable said bank clients need a delay because they lack the resources necessary to comply with the agency’s rules.


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