As we have noted in a recent client alert, the transition to the Trump administration is likely to have a significant impact on the regulatory agenda of the Commodity Futures Trading Commission (“CFTC” or “Commission”). House Agriculture Committee Chairman K. Michael Conaway wants to ensure that the status quo is preserved until such time as the CFTC’s new leadership is able to set the agency’s new agenda. On November 18, 2016, Chairman Conaway sent a letter to CFTC Chairman Timothy G. Massad urging the CFTC not to engage in “midnight rulemaking” (i.e. pushing through new rules in advance of the transfer of power). Chairman Conaway’s letter follows on the heels of a letter sent by Republican committee chairmen to the heads of all government agencies warning against such rulemaking, and threatening to use the Congressional Review Act to overturn any rules finalized in spite of this request.
In his November 18th letter, Chairman Conaway urged Chairman Massad to halt action on three pending rulemakings: the position limits rule, Regulation Automated Trading (“Reg. AT”), and the cross-border application of registration requirements for swap dealers and major swap participants.
The proposed position limits rule, according to Chairman Conaway, remains a “deeply controversial proposal” that “remains far short of a workable rule.” According to Chairman Conaway, there is insufficient time to engage in the “healthy exchange of ideas,” to “understand potential policy alternatives,” and to “conduct the appropriate cost-benefit analysis of any amended text.” Accordingly, he argues that this should be left to Chairman Massad’s successor and the new CFTC commissioners once they are confirmed.
Similarly, according to Chairman Conaway, proposed Reg. AT, which the CFTC recently supplemented (over Commissioner J. Christopher Giancarlo’s dissent) has “numerous problems that the next Commission must grapple with.” In particular, Chairman Conaway expresses concerns that, due to the abbreviated comment period, comment letters will be due in early January, “only to see the new commissioners propose further amendments to the rule, necessitating another round of comment letters” that would be a waste of resources for market participants and the CFTC. Thus, Chairman Conaway urges Chairman Massad to extend the comment period by 180 days.
Cross-Border Application of Swap Dealer and Major Swap Participant Registration
Although it is unlikely that the CFTC’s proposal on the cross-border application of swap dealer and major swap participant registration requirements could be finalized before the end of Chairman Massad’s term, Chairman Conaway urges that action on this proposal be halted so that Chairman Massad’s successor has “as much latitude as possible to negotiate with foreign regulators on issues of international jurisdiction.”
We expect that, once Chairman Massad steps down, Commissioner Giancarlo will become the Acting Chair. In such event, and if Chairman Massad abides by Chairman Conaway’s requests in the letter, the shape of the final rules, and in particular of Reg. AT, is likely to be significantly different from what was expected before the election on November 8.