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At the CFTC even Gensler is too much for the big banks

Section: Daily Dispatches

Commodity Futures Trading Commission Faces Top-Level Shake-Up

By Gregory Meyer
Financial Times, London
Tuesday, June 18, 2013

In the past month bankers and lawyers from Citigroup, Goldman Sachs, and JPMorgan Chase have streamed into a dark brick Washington office building where the future of finance is being shaped.

The high-powered visitors to the home of the Commodity Futures Trading Commission testify to its rise from an obscure US government agency to a global watchdog of financial derivatives, the scandal-hit Libor lending benchmark, and physical commodities from oil to silver.

The agency's tack is now more in question than at any time since Gary Gensler became chairman four years ago. He and one or two others on the five-member commission may be replaced as soon as July, lobbyists and commission officials say. This could slow or reverse Mr Gensler's clampdown on Wall Street banks.

... Dispatch continues below ...


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"If there is 60 per cent turnover at the commission, that means there could be a 60 per cent change in direction of the commission," says Michael Dunn, a former CFTC commissioner at lobbyist Patton Boggs.

The banks, their opponents at liberal pressure groups and others have filed through the commission's glass doors to try to influence new rules transforming the $633 trillion derivatives market. Under Mr Gensler, the CFTC has shaved dealer banks' information advantage, set business conduct standards, and forced more swap contracts to be backed by clearing houses.

Mr Gensler's term expired in April 2012 but by law he can stay through to the end of the year if no successor is confirmed. As the sun sets on his tenure, one big reform plank remains incomplete: guidelines for foreign derivatives dealers, whose blow-ups could endanger the US economy.

If this does not pass, Mr Gensler has warned that the CFTC's painstakingly constructed regulatory framework could become a hollow shell as derivatives operations move offshore but retain Washington's implicit backing.

"If the offshore operations of financial institutions are allowed a free pass from reform," he said in a recent speech, "we will not fulfil Congress' intent to end 'too big to fail.'"

The term of commissioner Bart Chilton, a Democrat like Mr Gensler, expired in April but he can serve through 2014 unless he is reappointed or another commissioner is confirmed. He says: "There's work to be done and I'd like to continue to do it."

Lobbyists say one candidate to replace either man is Amanda Renteria, former chief of staff to Debbie Stabenow, the Senate Agriculture Committee chairman. The committee oversees the CFTC.

Ms Renteria holds a Harvard MBA and helped on the Dodd-Frank financial reform law that laid the groundwork for the CFTC's derivatives rules, associates say. Still, "you can tell looking at her resume she's not a derivatives market expert," says a former senior CFTC official, now an industry lobbyist.

Commissioner Jill Sommers, a Republican, has announced plans to resign. Names in circulation as possible replacements include Chris Giancarlo, executive vice-president at interdealer broker GFI Group, and Martha Scott Poindexter, Republican staff director on the Senate Select Intelligence Committee.

Mr Giancarlo has roots in off-exchange markets. In congressional testimony last December he was critical of what he called the "anti-competitive, single-silo, monopolistic structure of the futures market."

The prospect of a personnel shuffle hangs over the CFTC's pending business. Already three commissioners -- Ms Sommers; Mark Wetjen, a Democrat; and Scott O'Malia, a Republican -- have questioned whether the foreign guidelines should be completed before a July 12 exemption expires for offshore branches of dealers such as Goldman and JPMorgan.

The CFTC has other contentious tasks to complete. A customer protection rule proposed in response to the MF Global collapse and Peregrine Financial Group fraud has agitated brokers, who claim it will require $100 billion in extra margin collateral, making futures markets too costly to trade.

The agency is also trying to impose new constraints on commodity speculators after banking groups successfully sued to overturn initial limits.

"Gary is not the kind of person who comes up and slugs you in the nose, but he's persistent," Philip McBride Johnson, a derivatives lawyer and former CFTC chairman, says of Mr Gensler. "I don't know for sure if a new composition of the commission would be inclined to either slow down or back off."

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