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Gensler highlights progress on transparency

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Modern Money

Gary Gensler, chairman of the Commodity Futures Trading Commission

As the clock ticks down on his time as chairman of the Commodity Futures Trading Commission, Gary Gensler took time Tuesday to highlight some of the achievements at the CFTC during his time at the helm. Speaking at CME Group’s annual Global Financial Leadership Conference, Gensler shared details on how the CFTC’s efforts in implementing the Dodd-Frank Act have helped increase transparency in the swaps market.

Gensler tipped his hat to the futures market, saying President Obama, Congress and regulators often looked at it as a template when conceptualizing and writing rules for other markets. “For decades, the futures market has worked well,” Gensler said.  “Even through the crisis of 2008, it stood the test of time.”

Gensler said the CFTC will soon start publishing aggregate data coming from three swaps data repositories every Wednesday. Whether that data will become market-moving information remains to be seen.

“The public can see the price and volume of each swap transaction as it occurs. This information is available, free of charge, to everyone in the public. The data is listed in real time – like a modern-day tickertape – on the websites of the three swap data repositories.”

As it stands now, the data puts the notional value of the swaps market at $380 trillion, with volumes averaging 5000-7000 trades per day, Gensler said. Just about a month into their operation, Gensler said swap execution facilities are seeing 2000-2400 trades per day. Gensler juxtaposed that information with the $30 trillion futures market that sees millions of trades per day.

Gensler also highlighted progress on clearing. “Five years ago, swaps clearing happened either at the end of the day or even just once a week. This left a significant period of bilateral credit risk in the market, undermining a key benefit of central clearing. Now reforms require pre-trade credit checks and straight-through processing for swaps trades intended for clearing,” Gensler said. “As a result, 99 percent of swaps clearing occurs within 10 seconds, with 93 percent actually doing so within three seconds. No longer do market participants have to worry about credit risk when entering into swap trades intended to be cleared.”

When asked by an audience member about the ramifications of the CFTC being reduced to just two commissioners when he and Bart Chilton depart, Gensler noted there have been three other times in the Commission’s history when it was reduced to just two commissioners (Commissioner Jill Sommers has also departed). Gensler also expressed faith in the remaining commissioners — Democrat Mark Wetjen and Republican Scott O’Malia — to carry on the work of the CFTC despite their political differences. In fact, Gensler said the notion that many of the CFTC’s rule-makings have been contentious is inaccurate. Two-thirds of the Dodd-Frank rules were adopted by unanimous vote of the commissioners. Gensler added that 86% of the rules have received bipartisan votes.

Ultimately, Gensler said the work of the CFTC is shifting from rule-writing to reviewing entities for compliance. That means firms can expect more exams, increased surveillance and stronger enforcement. Those three things represent key tools for preserving the transparency and progress for which Gensler has fought so hard to nurture.