Scoring the October 18, 2011 CFTC Open Meeting


By Douglas Ashburn


John Lothian News


Normally, one would not list CFTC meetings among top choices in televisual entertainment, but the October 18, 2011 open meeting was a relatively raucous affair. The final rules on position limits, which required the cancellation of two prior meetings in order to give the commission extra time to hammer out the specifics, squeaked by on the narrowest of margins, clearly the result of some last-minute “horse-trading” back stage. A final rule covering derivative clearing organizations (DCOs), which also passed 3-2, was equally contentious. Additionally, the commission voted to extend the effective date for certain Dodd-Frank provisions until July 16, 2012. Commissioner Chilton quoted “Huggy Bear” from Starsky & Hutch. And, at one point, the room joined together in a song, which was led by Commissioner Dunn.

No; they did not sing “Kum-ba-yah” - they sang “Happy Birthday” to Chairman Gensler, who turned 54 the day of the meeting. Under normal circumstances, upon hearing Mr. Dunn’s rendition, I would have suggested he not quit his day job. However, as his time with the commission is done, pending the confirmation of his successor, it seems as if he has already quit his day job. Chilton’s Huggy Bear reference, by the way, was the line, “I lay it out, so you can play it out,” meaning the commission must follow the mandates laid out by Congress in the Dodd-Frank Act.

The position limits rulemaking has easily been the most controversial issue thus far in the 20 Dodd-Frank-related meetings. With Gensler and Bart Chilton in clear support, and Commissioners Jill Sommers and Scott O’Malia firmly against, Dunn held the swing vote. He has clearly been torn on the issue. In his opening statement, he says, “No one has proven that the looming specter of excessive speculation in the futures markets we regulate even exists, let alone played any role whatsoever in the financial crisis of 2008.” In the end, he grudgingly votes to approve the rule, stating, “the [Dodd-Frank] law is clear, and I will follow the law.”

In exchange for his vote, Dunn was able to extract a few “guarantees,” in the public record, from the chairman. In what he called his “colloquy,” Dunn received assurances that the commission would closely study the imposed limits, address any unintended negative consequences, and remain open to granting relief to “legitimate businesses” that may be impacted. The rule passed, but Dunn was allowed to wash his hands of the outcome.

In stark contrast, Chilton says, in defense of position limits, “while I’d have an even tougher rule in many respects if I were the only author, this is nonetheless a very strong, needed and imperative rule to ensure more efficient and effective markets devoid of fraud, abuse and importantly, manipulation. This rule balances the needs of consumers and market participants alike.” The man is consistent.

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