Official says Gensler asked not to be renominated

The media has been increasingly focused on a replacement for Commodities Future Trading Commission chairman Gary Gensler, whose term expired April of 2012. While up until several months ago the White House had made public its desire to renominate him for chairman, there has never been confirmation from Gensler whether he wanted to retain his post or step down. After I posted a piece encouraging President Obama to renominate Gensler I was contacted by a CFTC official who said that Chairman Gensler definitively did not want to be renominated. This appears to be the first public statement about Chairman Gensler’s intentions.

The clearest statement that Chairman Gensler has made previously was in a March 5, 2013 Wall Street Journal article:

Mr. Gensler said in an interview that he plans to keep working on rules to regulate derivatives trading and hasn’t decided whether he will stay at the agency for a second term.

“I love this job, it’s a terrific job,” he said. “We’ve still got a lot to do.”

There are still many CFTC rules, stemming from Dodd-Frank, to complete and Gensler should stay to complete them. Under his leadership the CFTC has exposed the Libor abuses and has fought hand to hand battle with the largest global banks to move derivatives trading onto swap execution facilities (SEFs), increase price transparency and require counterparties to post more collateral for swaps trades. The latest and largest CFTC battle involves imposing CFTC rules on the foreign offices of U.S. firms like JP Morgan which experienced substantial losses in their London Whale swaps trades. Financial markets have been well served by Gensler’s tenure and it’s a shame that it will be ending.

Obama should not chase CFTC-head Gary Gensler away

The Huffington Post’s Shahien Nasiripour brought news of the Obama Administration’s effort to run off the most effective financial regulator since Franklin Roosevelt signed the 1933 and 1934 Securities Acts into law:

President Barack Obama is poised to nominate Amanda Renteria, a former Senate staffer, to replace Gary Gensler atop the main U.S. derivatives regulator amid an intensifying fight between Gensler and the world’s major banks and regulators over cross-border transactions.

And why is Gensler being run off? Nasiripour writes:

Renteria’s elevation would end Gensler’s tenure as the nation’s top derivatives overseer. A former Goldman Sachs executive who was viewed skeptically by some liberal lawmakers when he was first nominated in 2009, Gensler has become perhaps Wall Street’s leading foe as he has sought to curb risk and expand transparency and competition in the previously opaque market for a type of derivatives known as swaps.

Troubles in Volcker land?

My post last week about ditching the Volcker Rule and returning to some form of Glass-Steagall got a lot of positive responses. Back then I wrote that the Volcker Rule, which requires regulators to cleave risky trading for a bank’s house account from deposits insured by the FDIC, is immensely complex and that it will never be properly defined or enforced. Several regulators in the past week have agonized publicly over the need to get the rule “right.”

First among them was Fed Chairman Ben Bernanke. In the three minutes of C-Span video above, Bernanke says: “We are going to try and do our best to clarify the distinction between proprietary trading and market making.” It’s clear that even to our top banking regulator, defining Volcker properly is nearly impossible.

SEC Chairman Mary Schapiro had this to say on Volcker, via The Hill:

When asked by Rep. Mario Diaz-Balart (R-Fla.) if regulators would be better off scrapping the proposal and starting over, Schapiro was noncommital.

Lessons from MF Global

The October bankruptcy of MF Global has been the subject of several Congressional hearings recently. 38,000 MF Global clients lost $1.2 billion in the collapse, and numerous regulators, as well as the Department of Justice, have been trying to unravel hundreds of thousands of transactions to discover how this client money disappeared. Weeks later, it’s still unknown whether clients will have their funds returned or whether any laws were broken. What is certain, though, is that even after the passage of Dodd-Frank, our regulatory system has large supervisory gaps.

The derivatives and futures businesses in which MF Global operated are complex, and it’s easiest to understand the firm as a large transaction processor that served its futures clients by connecting them to exchanges around the world. MF Global was both a broker-dealer and a futures commission merchant, meaning it was regulated by the SEC as well as the CFTC. In addition, MF Global was overseen by the Financial Industry Regulatory Authority (FINRA) and the CME, two self-regulatory organizations empowered by the SEC.

The big problem with oversight of MF Global within the U.S. is that there were too many regulators with only a small window into the firm’s activities and none with the ability to see the full scope of risks and capital of the holding company. How can we fix this?

Muni sweeps: Derivatives transparency for dummies


The colorful chart above is from Lisa Pollock of Markit and shows the states which have the most traded credit-default swaps and their spreads to the benchmark. Bloomberg has more on that theme.

Derivatives transparency for dummies

Much of the damage that occurred in the financial crisis of 2007-09 came through the use of derivatives. Wall Street sold these products to sophisticated and unsophisticated investors across the globe. I wrote about the efforts of the Pennsylvania Auditor General Jack Wagner to develop a database of swaps for local governments. This effort should be lauded and hopefully copied by other states. But the value of the information in the database is not as great as having near real-time trade information to compare the pricing of a new derivative.

The Dodd-Frank Act has authorized a lot of transparency for the derivatives market. It’s very complex and arcane, so don’t worry if you haven’t figured it out yet. The law firm Reed Smith has created a “derivatives transparency for dummies” chart and I thought it would help us understand the changes.

Muni sweeps: ‘How-to’ primer for bid-rigging

UBS finally comes to the table

In November, 2009 the Wall Street Journal reported that Swiss bank UBS was in talks to settle with the SEC on their role into the three year investigation in municipal bid rigging.

After two years they’ve finally reached agreement to pay $160 million in restitution and fines.

From the SEC announcement:

“Our complaint against UBS reads like a ‘how-to’ primer for bid-rigging and securities fraud,” said Elaine C. Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit.

Starving the financial cops

What is easier to regulate, financial markets or the nuclear industry?

If it is a matter of resources, financial markets must be very easy to regulate.

Congress sets the budget for the regulation of both industries and here are the numbers from 2009 (except nuclear industry revenue data from 2010).

I thought it would be interesting to compare industry revenues to the budget of the regulators.

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