|
|
Enron Mail |
ISDA PRESS REPORT - March 6, 2001 (Supplemental)
* CFTC Proposes Rules Implementing Commodity Futures Modernization Act of 2000 * CFTC Rule Proposal Would Establish Three-Tier Regulatory Regime for Markets * Meyer Promotes Basel Committee Proposal CFTC Proposes Rules Implementing Commodity Futures Modernization Act of 2000 www.cftc.gov <http://www.cftc.gov<; - March 6, 2001 Washington -- The Commodity Futures Trading Commission (CFTC) today announced that it is proposing rules relating to trading facilities to implement the Commodity Futures Modernization Act of 2000 (CFMA). Congress, on December 15, 2000, passed, and the President, on December 21, 2000, signed into law, the CFMA, which substantially altered the Commodity Exchange Act. The CFMA amended the law to establish three categories of markets, designated contract markets, derivative transaction execution facilities and markets exempt from CFTC regulation. The three categories match the degree of regulation to the varying nature of the products and the nature of the participant having access to the market. The proposed new rules and rule amendments are being published in the Federal Register for a 30-day comment period. The Commission, in its Federal Register notice, urges commenters to submit their comments as early as possible during the comment period so that the statutory changes may be effectuated without delay. Acting Chairman Newsome stated, "Today's release of these proposed revisions is an important step in fulfilling Congress's mandate to implement the CFMA's provisions without delay. We look forward to a productive discussion of this release over the next 30 days." Copies of these documents can be obtained by contacting the Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581, (202) 418-5100 or by accessing the Commodity Futures Trading Commission website. CFTC Rule Proposal Would Establish Three-Tier Regulatory Regime for Markets BNA - March 6, 2001 The Commodity Futures Trading Commission began the task of implementing the 2000 Commodity Futures Modernization Act (CFMA) by proposing a set of rules March 5 aimed at making the commission more of an oversight agency than a front-line regulator. The rule proposal would implement the new statutory framework establishing three new market categories, including exempt markets and two categories of markets subject to CFTC regulatory oversight. "The remaining parts of the framework relating to clearing organizations and to intermediaries will be reproposed shortly," the agency stated. Core Principles The proposal establishes what the CFTC deems "core principles" that the exchanges would operate under. It is meant to replace a "one-size-fits-all" regulatory scheme that critics say hampers the U.S. markets by making them over-encumbered and plodding--unable to compete with a fast-shifting international marketplace. Now, the exchanges will be segregated according to who trades on them and what is sold, with varying degrees of oversight for the different tiers. The hope is that the exchanges with the most sophisticated traders will be able to govern their own houses, with the CFTC staying clear of most regulation. The proposals effectively replace rules that were passed in December, but that were rendered moot and withdrawn when Congress later that month passed similar legislation. In effect, the proposed rules establish three tiers of oversight for the various futures and options markets: designated contract markets, derivatives transaction execution facilities, and exempt markets. The designated contract markets are "approved boards of trade or trading facilities on which contracts for future delivery on any commodity may be traded by any type of market participant," according to the CFTC's Federal Register notice. The next tier would consist of derivatives transaction execution facilities and would be open to "traders of futures and option contracts on commodities that have a nearly inexhaustible delivery supply, are highly unlikely to be susceptible to manipulation, have no cash market, and are security futures products." This tier would have an intermediate level of oversight, according to the proposal. Finally, commercial markets and boards of trade would be exempt, signifying their relative sophistication in the markets. Comments on the proposal are due 30 days after Federal Register publication. Innovation, Competition The announcement makes clear the CFTC's intention to go from front-line regulator to a more behind-the-scenes oversight role. Since his appointment, acting Chairman James Newsome has stressed his belief in free-market principles and the idea that freeing the exchanges from over-zealous oversight would help them compete in the global marketplace. In its release, the commission said the proposal "was intended to promote innovation, maintain U.S. competitiveness, and at the same time reduce systemic risk and protect customers." The commission also said the proposal would allow U.S. exchanges greater flexibility in competing with technological innovations involving foreign competitors. The proposal is the first portion of the 2000 CFMA to be taken up by the commission. The legislation was passed in the waning moments of the previous Congress, and it promises to drive much of the commission's agenda this year. Meyer Promotes Basel Committee Proposal BNA - March 6, 2001 By Richard Cowden Addressing a group of banking officials in Washington, D.C., March 5, Federal Reserve Governor Laurence H. Meyer actively promoted the new approach to international banking regulation represented by the recent proposal for major revisions to the Basel Accord. In remarks to the Institute of International Bankers, Meyer at once conceded that the Jan. 16 proposal by the Basel Committee on Banking Supervision "is still very much a work in progress, with important issues still unresolved," while defending it as a necessary initiative to keep up with the times. The 1988 Basel Accord has served its purpose, Meyer said. "But technology and business practices have moved on, and for the larger institutions this decade-old rule has developed critical shortcomings. Risk-measurement practices have improved, and capital markets have become more tightly intertwined. Assumptions and shortcuts taken in the current accord are far too crude, given practices today." A new regimen for setting international capital standards is needed, he said, because many large, complex financial institutions today structure portfolios to arbitrage around the existing standard, undercutting one of the original intents of the Basel Accord to establish capital ratios that reflect a bank's actual strength. "Thus, we need a capital framework that is more risk-sensitive and compatible with current market practices," Meyer said. "Absolute levels of capital must be consistent with risk in order not to shift risk-taking either away from or to banks, but we also need a standard that better reflects relative levels of risk." Meyer outlined the Basel Committee's proposal, which relies on a "three-pillar" approach, involving a new capital standard, heightened supervisory review of banks' own internal assessments of their capital ratios, and increased public disclosures of risk portfolios. "The new proposal, in effect, increases the emphasis on the supervisors' oversight of the institution's economic capital needs, as it refines the calculation of the regulatory minimum," he said. Backs Controversial 'Pillar 2.' One of the innovative features of the proposal is that it would give banks the option of developing their own internal models for calculating capital adequacy, Meyer said. However, such methods are expected to rely heavily on proper supervision. During a recent meeting of the Shadow Financial Regulatory Committee, this "pillar" of the Basel Committee proposal was called into question as a factor that could be compromised by pressures on individual national supervisory authorities. Meyer said, " ... for some--and perhaps for many--supervisors abroad, implementing pillar 2 will be an even greater challenge and a more significant event, potentially introducing a material change in their role. For all of us, though, it is the right approach--relying more than before on the internal measures and management practices of banks, giving them more incentives to invest in better information systems and controls ... " In regard to disclosure issues, Meyer acknowledged the formative nature of the proposal. He said, " ... we recognized that we still have more work to do in fashioning a more disciplined and prioritized set of disclosure requirements, one that balances the cost of compliance against the benefits of disclosure. This ... is an area in which bank comments [on the Basel Committee's proposal] would be particularly helpful." Jochen Sanio, president of the Federal Banking Supervisory Office of Germany, called the proposed revision of the Basel Accord a "radical departure" from a conventional approach to international banking regulation that relies almost entirely on standards that are set by regulators. He predicted the new Basel Accord will take effect early in 2004. "Basel II is not the end of the story. Basel II is a first step, a very big step forward ... but the revolution, to quote ... Trotsky, the revolution will be a permanent one ... . And after Basel II there will be Basel III and IV. And that's when we will talk about credit risk models ... I am convinced it will take the academics only some years to really perfect credit risk modeling, and then it will be accepted." Scott Marra Administrator for Policy & Media Relations ISDA 600 Fifth Avenue Rockefeller Center - 27th floor New York, NY 10020 Phone: (212) 332-2578 Fax: (212) 332-1212 Email: smarra@isda.org
|