From: WSJ

CFTC Taps Help for Cost Analysis on New Rules


WASHINGTON—The White House office that reviews federal regulations will help derivatives regulators with the cost-benefit analysis of their rules, after regulators’ analysis of costs has been the subject of several recent lawsuits challenging new rules.

Commodity Futures Trading Commission Chairman Gary Gensler said at a meeting Thursday that the agency had entered into a memorandum of understanding with the Office of Information and Regulatory Affairs that will allow an OIRA staffer to work with the CFTC on the economic analysis of rule making.

The move comes after two lawsuits in the past six months have challenged new CFTC rules, in part, on the basis of allegedly poor analysis of the costs of the new rules. In one of the suits, the Investment Company Institute and the Chamber of Commerce in April challenged the requirement that mutual funds register with the CFTC; the groups said that the requirements would add needless costs because mutual funds are already regulated by the Securities and Exchange Commission.

Democrat Commissioner Bart Chilton, who on Wednesday called the lawsuits a “bastardization” of the legal requirement for regulators to consider costs, said the closer relationship wouldn’t affect the independence of the CFTC.

“It is in no way a commentary on any past or current litigation,” Mr. Chilton said. He said that memorandums of understanding are “a dime a dozen.”

Commissioner Scott O’Malia, a Republican, praised the greater cooperation with OIRA, which he said holds the gold standard for cost-benefit analysis. Mr. O’Malia sent a letter to the Office of Management and Budget earlier this year asking it to oversee the CFTC’s cost-benefit analysis, which it had declined to do, citing the CFTC’s status as an independent agency, outside the purview of the executive branch.

In the meeting Thursday, commissioners also unanimously passed a rule that would lay out further requirements for exchanges, as part of the new regulatory regime for formerly unregulated derivatives called “swaps” that Congress mandated with the 2010 Dodd-Frank law.

The commission delayed one of the more disputed parts of the proposal for exchanges that would have required any new product to have at least 85% of trades take place on the exchange, rather than in block trades or other off-exchange deals.

CFTC staff said the 85% rule would be considered later with rules for new trading platforms called “swap-execution facilities.”

Mr. Gensler also said that the commission is also considering delaying the implementation deadline for the new swaps rules for six more months to Dec. 31, 2012. The Dodd-Frank law said most rules should be implemented one-year after the July 2010 passage of the law, but regulators have pushed that deadline off while they work to finish writing rules.

Mr. Gensler also said that the agency is planning a roundtable discussion on the Volcker rule, which bans banks from proprietary trading or investing in hedge funds.