Gensler’s Swap Comments Hold Further Significance

CFTC chairman Gary Gensler’s testimony in front of the Senate Banking Committee today contained a few nuggets worthy of note. Due to his connections to Corzine, Gensler had recused himself from the MF Global CFTC investigation, falling under heavy criticism in the process. Since then, he has stalwartly refused to comment on the subject, but today, that silence was broken. To be fair, much of the commentary on MF Global was touting the company line that the CFTC did everything they could under the circumstances – actually becoming defensive during lines of questioning related to concerns about Corzine in the investigation, stating that they, “didn’t care beans about Corzine,” instead focusing on the client money at stake.

However, for us, there was one very critical component of his prepared testimony that stood out to us. While the comment was made in the context of the swaps debate, Gensler stated (emphasis ours):

Some commenters have expressed the view that if a transaction is done offshore, it should not come under Dodd-Frank.  Others contend that as long as an offshore dealer is regulated in some capacity elsewhere, many of the Dodd-Frank regulations applicable to swap dealers should not apply.  The law, the nature of modern finance, and the experiences leading up to the 2008 crisis, as well as the reminder of the last two weeks, strongly suggest this would be a retreat from much-needed reform. When Congress and the Administration came together to draft the Dodd-Frank Act, they recognized the lessons of the past when they expressly set up a comprehensive regulatory approach specific to swap dealers.  They were well aware of the nature of modern finance:  financial institutions commonly set up hundreds if not thousands of “legal entities” around the globe with a multitude of affiliate relationships.  When one affiliate of a large, international financial group has problems, it’s accepted in the markets that this will infect the rest of the group. This happened with AIG, Lehman Brothers, Citigroup, Bear Stearns and Long-Term Capital Management.

Gensler’s comments were no doubt focused on the London based losses of JP Morgan that came to light over the past few weeks. For us, viewing these comments through the lens of the MF Global experience, this is a larger truth than just the necessities of strict interpretations on swaps. If you’ll remember, one of the major concerns about how the money from MF Global had happened to go “missing” was the potential use of rehypothecation abroad by JP Morgan, above and beyond the limits of U.S. law. Their ability to do so was based on this loophole Gensler broadly referenced – that U.S. based institutions may skirt U.S. law by conducting transactions via off shore subsidiaries.

For the protection of investors everywhere, we hope that Congress will take this comment to heart. We can’t say we know exactly what happened during the collapse of MF Global, and conspiracy theories certainly abound, but in our minds, we want to know that regardless of the MF Global situation’s ultimate resolution, FCMs cannot abuse investor trust here or abroad.

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

logo