O’Malia’s holiday message December 1, 2012 at 4:20 pm

CFTC Commissioner Scott D. O’Malia recently gave a speech which has a fair assessment of the CFTC’s efforts in implementing Dodd Frank, and a warning for the future:

Given the regulatory frenzy, it’s not surprising that there are many unintended, overreaching and technologically infeasible provisions in our rules… Unfortunately, the Commission’s rulemakings have already disincentivized trading on swaps venues by implementing burdensome swap dealer registration rules and disadvantageous margin requirements for swaps. As a result, energy traders fled from the swaps market to the standardized futures markets in October, a transition dubbed “futurization,” just ahead of the effective date for swaps regulations. Although futures contracts cannot be tailored to meet a company’s specific risk needs, they do offer far greater regulatory certainty, deeply liquid markets within which to hedge commercial risk, and capital efficiency to market participants. As the Commission reviews these transactional rules, it is important to make necessary regulatory adjustments in order to avoid a complete shutdown of the swaps market

These are indeed best wishes to – and prudent concerns for – the swaps market. I wonder what kind of new year the CFTC and ESMA will let it have.

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