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From Securities Regulation Daily, October 3, 2017

Project KISS comment period ends with a flurry of activity

By Brad Rosen, J.D.

The comment period for the CFTC’s high profile Project KISS initiative came to a close with a flurry of activity on September 30, 2017, as a cross section of futures and derivatives constituencies provided input in connection with improving and streamlining the commission’s regulatory landscape. According to the CFTC’s Project KISS website, a total of 140 comment letters were received, with 115 of those coming in the final week of the comment period.

Project KISS, which stands for the acronym for "Keep It Simple Stupid" was announced with much fanfare by CFTC Chairman J. Christopher Giancarlo at the FIA Boca Raton conference in March of this year (while serving as acting chairman). At the time, Giancarlo underscored the idea behind the KISS initiative was about taking CFTC’s existing rules as they are and applying them in ways that are simpler, less burdensome and less of a drag on the American economy.

Comments were submitted by many industry stakeholders, including on behalf of industry trade organizations, commercials, end-users, exchanges, clearinghouses, money managers, CTAs, CPOs, brokerage firms, banks and other financial institutions, as well the public at large. The commission’s request for comments fell under five categories: registration, reporting, clearing execution, and miscellaneous matters. The below comments are highlights and representative of those received from a variety of industry stakeholders.

Comments from the FIA. In its comment letter the FIA highlighted priority issues for which it advocates the commission take immediate action. Some of these controversial positions included:

  • Promoting more predictable enforcement. This means engaging in the development of new rules and or new policies through a notice and comment process rather than through enforcement actions, minimizing duplicative enforcement by the CFTC and self-regulatory organizations, and not pursuing claims for failure to supervise solely because an underlying regulatory violation is alleged to have occurred.
  • Withdrawing the position limits reproposal. FIA recommends that the commission withdraw the re-proposed position limits rule because it does not define the point at which speculation becomes excessive for a particular market. It posits by not identifying the point at which speculation becomes excessive, the commission does not have a sufficient basis to determine that the proposed position limits are necessary or that the size of the proposed limits are appropriate.
  • Retaining the $8 billion swap dealer de minimis threshold. FIA recommends that the commission should act to prevent the automatic drop of the swap dealer de minimis threshold from $8 billion to $3 billion.

Comments from market end-users. In its comments, the Coalition for Derivatives End-Users advocated for certain changes in the commissions reporting rules, which included:

  • codifying staff guidance and no-action relief where appropriate,
  • harmonizing U.S. and non-U.S. reporting obligations and data elements, and
  • Assuring any reforms to reporting rules are appropriately timed.

Comments from Better Markets. The comments received from Better Markets, a public interest organization, were highly critical and suspect of Project KISS as a matter of principle, noting, "Project KISS raises a serious concern that its inevitable consequence will be to weaken the regulatory structure that the Commission carefully crafted and previously adopted to ensure that our commodities and derivatives markets are as stable, transparent, and fair as possible."

Better Markets further asserted that "Project KISS is based on the erroneous premise that the derivatives markets and our economy as a whole are struggling under the weight of oppressive financial regulation." It claimed this "is a myth being fueled by the financial services industry and its allies in government to justify de-regulation that will enrich the industry but restore heightened levels of fraud, abuse, and instability in our financial markets, leading ultimately and inevitably to another financial crisis."

In support of its position, Better Markets pointed to data from the FIA which revealed record trading volume in 2016 of 25.22 billion contracts traded on exchanges worldwide.

As the commission has noted on prior occasions, any rule changes or recommendations resulting from Project KISS will be made pursuant to the Administrative Procedures Act.

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