Under fire from congressional Republicans to slow down derivatives rulemaking, the Commodity Futures Trading Commission voted Wednesday to reopen and extend by 30 days the public comment period on proposed derivatives rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The CFTC voted 4 to 1 to authorize the 30-day reprieve, a plan floated by chairman Gary Gensler at the open meeting.
The extension will apply to all Dodd-Frank rules, regardless of whether the comment periods have already closed.
Now the commission will field comments throughout the month of May, Gensler said.
The slowdown comes less than a year after President Obama signed the Dodd-Frank law, as the CFTC, the Securities and Exchange Commission and the Municipal Securities Rulemaking Board have scrambled to comply with statutory deadlines for issuing dozens of proposed rules.
Earlier this month, four Congressional Republicans, led by Rep. Spencer Bachus of Alabama, who chairs the House Financial Services Committee, introduced a bill that would delay by 18 months — until as late as December 2012 — the timetable for issuing derivatives rules under the act.
The bill would require the CFTC and the SEC, before issuing final rules, to hold public hearings and take testimony from market participants about the compliance burdens of any proposed regulations.
They also would be required to weigh this testimony in their cost-benefit analyses of proposed rules.
Gensler said the CFTC had substantially completed its proposed Dodd-Frank rules for swaps regulation, with the exception of the Volcker rule, for which the act imposes a different timeline. The Volcker rule prohibits banks from engaging in proprietary trading, owning or investing in a hedge fund or a private-equity fund.
By reopening and extending the comment process before the commission pivots into final rulemaking, he said, the public can opine on “the entire regulatory scheme as a whole.”
With a nod to the Bachus bill, he added: “As part of this, I am hopeful that market participants will continue to comment about potential compliance costs as well as phasing of implementation dates to help the agency as we go forward with finalizing rules.”
Under Dodd-Frank, the CFTC has authority to regulate swaps, swap dealers, and major swap participants, including muni-bond related swaps.
The SEC has oversight over security-based swaps, security-based swap dealers and major security-based swap participants.
However, the act narrowly defines security-based swaps so that they would not apply to those that are muni-related.
An SEC spokesman said the commission has not determined whether it will reopen or extend any of its comment periods.
Meanwhile, market participants hailed the CFTC’s move.
“It’s basically a sign that they’re very open and considering things very carefully,” said Peter Shapiro, managing director at Swap Financial Group in South Orange, N.J. “I thoroughly respect the job they’re doing in trying to make sense of Dodd-Frank.”
Still, one CFTC commissioner opposed the 30-day slowdown, complaining she did not have enough time to study it, even after venting frustrations about the rulemaking process.
Commissioner Jill Sommers, who voted against the extension, said the proposed rulemaking was often “rushed,” with revisions arriving on the eve of, or the morning of, commission votes.
With the final rules, the CFTC has “no room for error,” said Sommers, a former policy director and head of government affairs for the International Swaps and Derivatives Association,
Commissioner Bart Chilton, meanwhile, echoed her comments about getting the final rules right.
He also repeated his concerns — first voiced after introduction of the Bachus bill — that some legislators wanted to “run out the clock” on Dodd-Frank, delaying final rulemaking until after the 2012 presidential election.
“I think that would be a mistake,” he said. “Many of these people are folks who opposed the bill to begin with.”