the agency's rules have split the swaps market into domestic and foreign niches, as non-U.S. firms seek to avoid CFTC oversight.
“Mr. Giancarlo said he had planned to deliver the remarks Wednesday at a conference in New York. He said he withdrew after unsuccessfully seeking a waiver of government ethics rules that view his past work with swaps brokerage firms as a conflict. CFTC Chairman Timothy Massad is scheduled to deliver the keynote speech at the conference Wednesday.
“Mr. Giancarlo has long been a critic of the implementation of CFTC swaps-trading rules, though he backs mandates for overhauling the swaps market in general, including the requirement that many be processed through clearinghouses, which guarantee trades. New clearing and data-reporting rules for swaps were well-crafted and are meeting their objectives, he said.”20
Meeting in a Tower
The next morning, I was in Manhattan early for a series of meetings with market participants at several trading firms and brokerages. I intended to understand firsthand how the new swaps trading and bank capital rules were impacting trading markets. My day began with an 8:30 a.m. breakfast meeting at Goldman Sachs. Other meetings at other firms would take me late into the evening.
My chief of staff, Jason Goggins, and I announced ourselves in the lobby of the state-of-the-art, yet deliberately unostentatious office tower of Goldman Sachs on West Street in the World Financial Center. The Goldman name was barely present on the ground floor where we were greeted warmly by one of the firm's understated government relations executives. He led us up to a large conference room filled with an assortment of the firm's derivatives traders, business managers, and regulatory compliance officers. They went around the table, introducing themselves. I asked the group to tell me how the new rules were working and what impact they had, if any, on the firm's ability to serve its clients. The repeated answer was that the rules were causing the firm to cut back service to its smaller customers. I ran through some ideas for proposed rule changes, which they seemed to support. I wondered whether they would continue to support changes once they mastered the complexity of the current rules and built the systems necessary to deal with them.
Following the meeting, Jason and I were escorted up to the serene executive floor with a panoramic view across the Hudson River to New Jersey. There we met Goldman's President, Gary Cohn. I knew Cohn from my time at GFI when Goldman was an important client and he was our primary point of contact. Well informed and voluble, Cohn was a straight shooter in the hard elbows arena of interdealer trading. He was also fair-minded, though never to the detriment of his firm.21
Cohn invited me to get comfortable on his low-lying sofa with a cup of fresh coffee. He had read the piece in the Journal. He elaborated on the theme that I had just discussed with his managers, that the impact of not only CFTC regulation, but the whole panoply of rules and regulations imposed by Dodd–Frank, the G-20 Financial Stability Board (FSB), the US Federal Reserve Board, and US Financial Stability Oversight Council (FSOC) was to cause Goldman and its competitors to reserve cash rather than putting it to work on behalf of clients. As a result, Goldman would offer its limited resources more selectively to its best and largest clients. It was another incidence of ill-crafted regulation helping big companies over small ones.
I left Cohn's executive suite and headed to meetings with other New York swaps trading firms. I had no way of knowing that in just a few years Gary Cohn would play a key role in my career trajectory.
Meanwhile, I received word from a number of attendees at SEFCON that my speech and the announcement of the white paper were causing quite a stir. Undoubtedly, the White House's waiver denial ensured that the speech that was not given at SEFCON received far more attention than it would have garnered if it had been given from the SEFCON podium.
Thank you, CFTC Office of General Counsel and, maybe, the White House. As a junior commissioner, I could not possibly have received that much attention without your help.
Notes
1 1. The Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111–203, H.R. 4173, commonly referred to as Dodd–Frank) was signed into US federal law by US President Barack Obama on July 21, 2010. It was the largest revamp of the US financial regulatory framework since the Depression, affecting all federal financial regulatory agencies and almost every part of the nation's financial services industry. Among other mandates, Dodd–Frank substantially expanded the jurisdiction of the Commodity Futures Trading Commission (CFTC) to regulate over-the-counter derivatives.
2 2. Robert J. Shiller, Finance and the Good Society (Princeton University Press, 2012), 76.
3 3. Leo Melamed is an American attorney, finance executive, and Chairman Emeritus of the CME Group who pioneered numerous financial instruments, including futures on US Treasury bills, Eurodollars, and stock index futures. See, generally, Leo Melamed, Man of the Futures: The Story of Leo Melamed & the Birth of Modern Finance (Harriman House, 2021).
4 4. Richard L. Sandor is an American businessman, economist, entrepreneur, and Chairman and CEO of the American Financial Exchange who pioneered interest rate futures. He also founded the world's first exchange to facilitate the reduction and trading of greenhouse gasses, earning the title “father of carbon trading.” See Good Derivatives: A Story of Financial and Environmental Innovation (Wiley, 2012).
5 5. Anatoli Kupriyanov, 2009 ISDA Derivatives Usage Survey, International Swaps and Derivatives Association (ISDA) Research Notes, No. 2 (Spring 2009), 1–5 available at https://www.isda.org/a/SSiDE/isda-research-notes2.pdf
6 6. The Milken Institute found the following economic benefits to the US economy from derivatives: “[b]anks’ use of derivatives, by permitting greater extension of credit to the private sector, increased U.S. quarterly real GDP by about $2.7 billion each quarter from Q1 2003 to Q3 2012; [d]erivatives use by non-financial firms increased U.S. quarterly real GDP by about $1 billion during the same period by improving their ability to undertake capital investments; [c]ombined, derivatives expanded U.S. real GDP by about $3.7 billion each quarter; [t]he total increase in economic activity was 1.1 percent ($149.5 billion) between 2003 and 2012; [b]y the end of 2012, employment had been boosted by 530,400 (0.6 percent) and industrial production 2.1 percent.” See Apanard Prabha et al., “Deriving the Economic Impact of Derivatives,” Milken Institute (Mar. 2014), 1, available at http://assets1b.milkeninstitute.org/assets/Publication/ResearchReport/PDF/Derivatives-Report.pdf
7 7. For a practical view of the role of derivatives products in everyday life, see: Dawn Stump, “Maybe Mom's Job Is Cool After All: Derivatives Get a Bad Rap, but They Keep Hamburgers Affordable,” Roll Call, March 8, 2021, available at https://www.rollcall.com/2021/03/08/maybe-moms-job-is-cool-after-all/
8 8. Food and Agriculture Organization of the United Nations, International
