CFTC Chair Looks to Tie up Loose Ends


The Commodity Futures Trading Commission (CFTC), which issued a flurry of no action letters yesterday related to swaps regulation, seems to be under considerable stress as swap related deadlines are approaching quickly and it is in a battle with outside regulators over its insistence their rules are applied in overseas jurisdictions and to U.S. entities operating overseas. Chairman Gensler faces a revolt as one Democratic commissioner, Mark Wetjen, has recommended delaying the rule deadline past July 12. Gensler recently disagreed with that plan in Congressional hearings.

The problems at the agency can’t be blamed on resources as Gensler noted to Futures that he has the resources to complete the rule process. Seems like a problem of priorities. Chairman Gensler took up the challenge of writing rules for its new mandate to regulate swaps but seemed determined from the beginning to remake the wheel. Former CFTC Chairman Philip McBride Johnson had noted that swaps were basically futures and the agency should just declare them so and then go about providing appropriate exemptive relief where necessary. This would have saved the agency time and money and perhaps provided more clarity.

At the same time this was going on the agency got involved in the controversy of positions limits. This was a distraction made worse by the MF Global debacle beginning in October 2011. And it goes on as the CFTC has pledged to appeal a court case that threw out its position limit rule.

Most importantly, the CFTC failed to protect the industry prior to and more disturbingly after it learned that MF Global had violated customer segregation rules. Chairman Gensler recused himself from the investigation, left it to a neophyte trustee to work on getting futures customers their money back and never seemed to grasp that this was his core responsibility.

Now it is reaching the end game on rule writing and Gensler’s term at the CFTC is up. He can remain as Chairman until the end of the year or until he is re-nominated but that doesn’t seem likely as the name of a possible replacement has already been floated. Gensler’s most solid backer, follow Democratic Commissioner Bart Chilton, is also rumored to be on the way out.

And finally we are hearing — more leaks here — rumors that the agency will file an enforcement action against Gensler’s pal Jon Corzine as soon as this week and the Wall Street Journal is reporting that former MF Global Assistant Treasurer Edith O’Brien received a Wells notice from the CFTC indicating she might be the target of a civil enforcement action.

O’Brien took the fifth in Congressional hearings and had been awaiting an immunity deal before talking to law enforcement. The WSJ reported that O’Brien recently received immunity citing unnamed sources but that has not been confirmed elsewhere.

We do not know whether any action against Corzine will happen or whether it would be in conjunction with a criminal prosecution, as many in the industry have called for. A criminal prosecution from the Department of Justice seems unlikely as they had continually leaked stories throughout the process indicating Corzine would not be prosecuted. One thing the CFTC could and should do is to make sure Mr. Corzine can never be a part of a registered entity and never be in a position to manage other people’s money.

Seems like Mr. Gensler is trying to wrap up all the loose ends from his tenure as Chairman. The biggest loose end is its failure to protect the industry throughout the MF Global debacle.


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