US Regulators Strengthen Ties with New Agreement

The agreement, which updates the previous MoU from 2008, focuses specifically on coordinating the efforts of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in implementing Title VII of the Dodd–Frank Act, which governs derivatives trading.

The CFTC, which has specific authority over swaps and over-the-counter derivatives, has made the most progress of the two agencies by far in implementing Title VII, by introducing swap execution facilities (SEFs) for the electronic trading of certain derivatives, swap data repositories for trade reporting, and through its work in ensuring that those instruments made available to trade on SEFs are cleared through central counterparty clearinghouses.

The SEC, by contrast, has a narrower set of obligations but has often been slow to implement rules in those areas it does have jurisdiction over, such as single-name credit-default swaps and other security-based swaps, given its role as an overseer of the listed markets. While work has been going on behind the scenes to implement a rule regarding these instruments, it has yet to emerge.

“[SEC] Chairman Clayton and I identified these rules and regulations as an area where coordination would enhance our effectiveness,” said CFTC Chairman J Christopher Giancarlo, in a statement.  “Simply put, greater harmonization of our Title VII rules will enhance our oversight efforts and reduce unnecessary complexity, and lessen costs on both regulators and market participants.  This MoU strengthens our joint regulatory response, streamlines our partnership and makes information sharing more seamless and effective.”

Clayton added that the nature of modern markets “demand that the SEC and CFTC work together to provide a coherent and coordinated approach to regulation.”

Although the agencies have long cooperated, there have been elements of discord in the past. US politicians have, at times, also suggested merging the two regulators into a single body that would oversee all US markets, but the proposal has been consistently shot down.

The two agencies came close to combining in 1995 through the Markets and Trading Reorganization and Reform Act, but the bill never made it out of committee. However, the question has continued to dog the two bodies, particularly after both failed to prevent the financial crisis of 2008.

The most recent verdict on the topic came from the US Treasury in 2017. In an October report discussing regulatory rollback, Craig Phillips, an aide to Treasury Secretary Steven Mnuchin, said that while some “synergies in mission functions could be found, merging the SEC and the CFTC is unlikely to materially enhance the efficiency in which their core activities are carried out.”

“Treasury believes that merging the SEC and the CFTC would not appreciably improve on the current system. Instead, policymakers, regulators, and other stakeholders should focus on effecting changes that truly promote efficiency,” Phillips wrote.