CFTC leadership change ease strains

Gina Chon | Financial Times

Under new leadership, the US Commodity Futures Trading Commission is easing tensions with European regulators and mollifying industry worries in a marked change from its recent past.

Since taking over the CFTC at the beginning of this year, acting chairman Mark Wetjen has taken advantage of his temporary time at the helm to lessen some of the waves made by his predecessor, Gary Gensler.

In the latest example of Mr Wetjen’s softer approach, the CFTC and European regulators agreed on Wednesday on cross-border swaps rules that exempt European trading platforms from US rules until equivalent European measures come into force.

The deal marked a significant step in improving relations, which had been strained during Mr Gensler’s five-year term. Mr Gensler was praised by Wall Street critics for implementing sweeping reforms to the swaps market by bringing more transparency and accountability.

But market participants complained that the rules brought confusion and uncertainty to the market, while European regulators accused the CFTC of overreach by imposing US rules on European actors. Soon after Mr Wetjen took charge, he reached out to his European counterparts to discuss ways to improve cooperation, sources said.

In another example of Mr Wetjen’s approach, the CFTC held public discussions on Wednesday on several issues that have worried market participants, including cross-border guidance that sparked a lawsuit against the agency and mandatory trading on so-called Swap Execution Facilities (Sefs) for certain kinds of transactions.

There have been missteps and Mr Wetjen’s style can be vulnerable to accusations he is too soft on Wall Street, especially compared to Mr Gensler’s tough approach. JPMorgan’s head of commodities, Blythe Masters, last week declined an invitation by Mr Wetjen to join a CFTC advisory committee after the move sparked criticisms.

Last year, the US Federal Energy Regulatory Commission accused Ms Masters of making “false and misleading statements” under oath during the agency’s investigation into allegations of market manipulation by the bank.

But those who know Mr Wetjen, a Democrat and former staffer for Senate majority leader Harry Reid, said he is not a pushover for Wall Street and in fact, agreed with most of the decisions made by Mr Gensler.

But he has a more quiet and deliberating approach, drawing from his experience as a lawyer. He has sought to ensure the CFTC’s credibility is not eroded as the agency imposes new rules, people familiar with the matter said. Mr Wetjen is in charge until his permanent replacement, Treasury official Timothy Massad, is confirmed by the US Senate.

To soothe industry concerns and avoid market disruptions, the agency announced Monday a 90-day relief period from mandatory trading on Sefs for so-called package trades.

“This relief is proof that it is never too late to do the right thing and take a first step to fix our broken rules,” said CFTC commissioner Scott O’Malia of the relief notice. Mr O’Malia is the sole Republican on the commission and often disagreed with Mr Gensler.

Market participants have been worried about their readiness given the launch next week of mandatory swaps trading on Sefs. In particular, they were concerned about package trades that involve swaps comprising two different maturities being bought and sold against each other.

The worry is that a clearing house may only approve one part of a package trade, rendering the strategy untenable for dealers and investors.

Read the full article in the Financial Times here.