The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are to work closer together while the United States moves to ease the regulatory burden on financial market participants.
The agencies said that they have approved a new Memorandum of Understanding (MOU) that specifically addresses the regulatory regime for swaps and security-based swaps, an area that the CFTC is currently seeking public comment on following a proposal last month to amend margin rules.
Also last month, a group of five US regulatory bodies said they planned to modify the Volcker Rule that was introduced after the 2008-09 global financial crisis, with the goal of easing what critics have described as its onerous regulatory burden. Their proposal is subject to a 60-day consultation period.
By statute, the Volcker Rule generally restricts banking entities from engaging in prohibited proprietary trading and from owning or controlling hedge funds or private equity funds.
The proposed changes are intended to streamline the rule by eliminating or modifying requirements that are not necessary to effectively implement the statute, while maintaining the core principles of the Volcker Rule as well as the safety and soundness of banking entities.
Currently under the Volcker Rule, all US commodities derivatives are subject to the ban on proprietary trading, with regulators stating at the time the rule was drafted that they wanted to prevent risky bets on the price of energy, metals and agricultural products.
The new proposal would create categories of banks based on the size of their trading assets and liabilities, and use those categories to tailor-make regulatory requirements. Dealers and market makers would also be exempt provided the value of each trading desk’s book is limited.
This could see the return of large banks to the commodity markets after several years of a pull-back by major players such as Goldman Sachs and Morgan Stanley, boosting volumes and increasing market liquidity which have suffered in the past several years and have only just started to improve.
The new CFTC-SEC MoU, which updates and enhances a 2008 agreement between the two agencies, is designed to be more relevant in the current market environment and promote efficiency in rule making, regulatory oversight, and enforcement.
CFTC chairman J Christopher Giancarlo said the harmonization of rules with the SEC would “enhance our oversight efforts and reduce unnecessary complexity, and lessen costs on both regulators and market participants.”
The agencies said they will continue to co-operate primarily through ongoing informal consultations and meetings.
The CFTC also recently said it is working to promote economic growth and job creation by bringing certain of its requirements in line with other US regulators including the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.