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CFTC Staff Relief for HFT Traders Potentially Positive, But Must Be Carefully Monitored

FOR IMMEDIATE RELEASE
Friday, July 1, 2019
Contact:  Jon Pattee at jpattee@bettermarkets.com

Washington, D.C.  –  Dennis M. Kelleher, President and Chief Executive Officer of Better Markets, issued the following statement relating to the Commodities Futures Trading Commission (CFTC) Division of Swap Dealer and Intermediary Oversight’s (DSIO) relief from swap dealer registration for Floor Traders meeting certain conditions:

“The relief, issued late on Thursday, by the CFTC’s DSIO staff from swap dealer registration and associated customer and market protections has the potential to diversify liquidity and promote much-needed and long-overdue competition in the swaps markets.  At the same time, this relief might bring some high-frequency trading (HFT) firms into the CFTC’s regulatory oversight for the first time.

“These changes could be very good for the swaps markets, their customers and end-users.  However, this relief has resulted from an intensive, multi-year lobbying effort by HFT firms seeking new, profitable markets, which should not be the goal of such significant regulatory relief.  The ultimate measure of whether these changes are appropriate and in the public interest must be whether the anticipated positive market, customer and end-user results actually come to fruition.

“That is an empirical question that will need to be answered by robust, validated data before the Commission itself proceeds on any future rulemaking seeking to codify the staff relief.  Specifically, if the Commission does proceed with such a rulemaking, it must focus on the key issues, including:

  • Has a significant number of firms registered as floor traders for the first time since the relief was adopted? 
  • Has the liquidity of the swaps markets changed for the better? 
  • Has the market diversified by various measures?      

“If the answer to these questions, and others, is 'yes,' the relief will have achieved its stated public interest objectives.  However, if the data do not conclusively result in that answer, then the relief must be promptly rescinded in favor of policies that do achieve those objectives.

“For now, we hope it’s the former, in which case the winners will be the markets, customers, end-users and, ultimately, the American people.  This is exactly what the Dodd-Frank Act sought to achieve: eliminating or at least improving a flawed derivatives market structure that entrenched a handful of gigantic, anti-competitive Wall Street dealers, which used a variety of legal and economic means to prevent transparent and fair trading.  If this relief helps to break that dealer oligopoly, our markets will be better for it.” 

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again.  Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com

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