Recommendations in this report cover debt, equity, commodities, and derivatives markets, central clearing and other operational functions. Many build on themes outlined in the Treasury’s first report, which focused on the banking industry. These reforms can be carried out largely through agency action rather than legislation – increasing the likelihood of implementation more expediently and more closely correlated with Treasury’s suggestions.
The report contains ninety one recommendations, seven of which would require legislation. Key recommendations include:
- Finalizing and harmonizing the swaps related rules of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), including the cross-border scope of those rules. The agencies are encouraged to develop an “alternate compliance regime,” such as substituted compliance or mutual recognition as appropriate, where harmonization is not possible either domestically or with non U.S. jurisdictions. The report highlights that the SEC has proposed but not yet finalized “several critical rulemakings” for security based swaps. With regard to margin requirements for uncleared swaps, Treasury recommends easing certain requirements related to transactions between affiliates, timeframes for margin settlement, and the scope of financial end users. Notably, Treasury argues against a merger of the SEC and CFTC, suggesting that it would not appreciably improve the system.
- Maintaining the CFTC swap dealer de minimis registration threshold at $8 billion, and subjecting any future changes to the threshold to a formal rulemaking and public comment process.
- Increasing regulatory oversight of systemically important Financial Market Utilities (FMUs) and central counterparties (CCPs). Treasury notes that because of the role FMUs play in the capital markets and their increasing interconnectivity with financial institutions, “heightened regulatory and supervisory scrutiny” is necessary. It recommends U.S. regulators “bolster resources” for the supervision and regulation of systemically important FMUs and the CFTC allocate greater resources for supervision of CCPs. Treasury also recommends the CFTC expand its future CCP stress testing exercises to incorporate additional products, different stress scenarios, liquidity risk, and operational and cyber risks (CFTC recently completed its first exercises).
- Improving policy decision making by avoiding the imposition of new requirements through no action letters, interpretations, or other form of guidance and pursuing rulemaking through the enhanced use of regulatory cost benefit analysis and public notice and comment. To this end, the report states that the agencies should take steps to ensure that guidance is not being used excessively or unjustifiably to make substantive changes to rules without going through the notice and comment process. Notably, these recommendations will increase the time and costs associated with new policy actions.
- Pulling back the bank regulatory agencies’ capital and liquidity standards