BPC Event on The Year Ahead for Capital Markets

Katie Malone | [email protected] | (202) 962-7465

Bipartisan Policy Center

“The Year Ahead for Capital Markets”

Tuesday, February 12, 2019

 Opening Remarks

Richard H. Baker, Former U.S. Representative; President and CEO, MFA

Baker discussed how the financial industry has “matured and transformed” over the last decade, including diversifying portfolios and managing risk, and that the Dodd-Frank Act created a “thoroughly regulated industry.” He added that while sometimes the goal of regulations is similar, resources can be better utilized if agencies coordinate together and commended the SEC and CFTC for being open regarding how to harmonize their regulations.

Fireside Chat


When asked by Ben White, Chief Economic Correspondent, POLITICO, about the harmonization between the SEC and CFTC, SEC Commissioner Hester Peirce noted that she and CFTC Commissioner Brian Quintenz have been working together on Title VII of Dodd-Frank but that they are looking for ways to harmonize as much as possible between the two agencies, and suggested overseeing registrants. Quintenz added that they addressed the “low hanging fruit,” like approaches to the designation of special entities. He suggested the systemic risk threshold for private funds, noting that the $1.5 billion threshold needs to be “multiple times higher than what was agreed to.” Neither Commissioner offered an alternative threshold number.


Peirce explained that with Form PF and in figuring out where systemic risk comes from, “everything and the kitchen sink” has been required and some of the information could be pared back. An audience member asked whether Form PF should be eliminated and if the SEC understands the data they receive from this form. Peirce replied that if she had the ability, there would be no Form PF, but that Congress asked for it “so we listen.” She added that the form was designed for systemic risk regulators, not for the SEC or CFTC, and that it is “odd for us to try to figure out what’s needed,” but that there should be a purpose for the data they are collecting. Quintenz noted that any changes to Form PF would have to be adopted jointly and that even if the form were eliminated, there are still extensive reporting requirements.


When asked if the SEC and other regulators take a too restrictive approach to cryptocurrency, Peirce noted the need to better explain how rules apply to the sector. She explained that she and Quintenz have been working on this as they do not want overlap between the two agencies, adding that more guidance is needed. Quintenz noted that the CFTC only has fraud and enforcement jurisdiction over commodities, so the difference between commodities and securities is significant. He suggested that for areas where there is not oversight, platforms should come together to create a self-regulatory structure with standards to examine/audit themselves.

Regarding abusive behavior in the initial coin offering (ICO) space, Peirce explained that it happens at the start of any trend, but that people should know the background of the people promoting ICOs and understand their white papers, noting that money is flowing to legitimate ICOs more than not.

Reference Rates

Quintenz discussed the move from the London Inter-bank Offered Rate (LIBOR) to an alternate rate, such as the Secured Overnight Financing Rate (SOFR), stressing that right now it is a “huge” education process so that everyone is aware of the upcoming change. He continued that many of the largest banks serve on the New York Fed’s Alternative Reference Rates Committee (ARRC) that has been tasked with coming up with the alternate to LIBOR. Peirce echoed Quintenz’s comments about needing to educate everyone on the upcoming change since LIBOR is part of so many different contracts.

When asked about incentives for institutions adopting an alternate rate, Quintenz replied that the incentive is that LIBOR is going away, noting that there is also a political element to it, as Members of Congress will start hearing from constituents when, for example, mortgages rise suddenly after LIBOR goes away. He continued that there needs to be a “big education initiative” with policymakers.

Systemic Risk

Peirce stated that Title VII of Dodd-Frank created very large, important, central counterparty clearinghouses that should be monitored for systemic risk. She continued that much of the regulatory reform applies uniform rules across the industry but that the capital markets are diverse and should be treated as such. Quintenz echoed Peirce’s comments regarding diversification and central counterparty clearinghouses, adding that clearinghouses do not eliminate risk, they mutualize it across their membership. He continued that there has been a large consolidation of membership within clearinghouses while at the same time the clearinghouses are being “supersized,” a risk regulators need to stay on top of.

Regulation Best Interest (Reg BI)

When asked about Reg BI, Peirce replied that it is a priority of hers and Chairman Clayton and that she is “looking forward to getting it done,” adding that the recent government shutdown impacted a lot of rulemakings, including Reg BI.

Capital Formation

White asked if the SEC has made progress regarding favoring large issuers over small businesses, to which Peirce replied that there is “a lot of work to do in this area.” She continued that the SEC now has an Advocate for Small Business Capital Formation, a position created by Congress, who will find ways to make the regulatory framework better for smaller issuers, adding that Chairman Clayton cares about the issue.

Panel Discussion


Tyler Gellasch, Executive Director, Healthy Markets, discussed the need for coordination between the SEC and CFTC, noting that presidents from both parties have discussed merging the two agencies. He stressed how “incredibly important” it is to find bipartisan agreement where progress can be made, citing examples like the Volcker Rule and swap execution facility (SEF) regulations that continue to try to be changed with the change in political party. Jennifer Han, Associate General Counsel, Managed Funds Association, discussed how agencies are expected to do more today than ever before with fewer resources allocated, but that a willingness among agencies to work together on economies of scale would have benefits for both constituents and the agencies. Petal Walker, Special Counsel, WilmerHale, noted that it makes sense to harmonize and “make life easier for businesses,” but that she has also seen where harmonization can be problematic when using a standard that does not make sense for certain products or personnel.


Gellasch agreed with Commissioners Peirce and Quintenz about clearinghouse risk, noting that if they are appropriately managed with adequate capital and margin levels, there is no concern. Walker stated that while risk is concentrated in clearinghouses, transparency has also increased and that the CFTC has a clear view of their margin and risk. She added that regulators get “better and faster data” using technology, adding that Blockchain would allow them to conduct stress tests throughout the day rather than only once a year.

Combining the SEC and CFTC

Han explained that while there have been past efforts to merge the two agencies, it would have happened during Dodd-Frank, but that the industry has “moved beyond this,” adding that the Chairmen at the SEC and CFTC have prioritized harmonization and coordination. She continued that harmonization and coordination have to be built into the agency’s infrastructure, so it is routine. Walker added that even if there was just one agency, there could be divisions that do not work together.

For more information on this event, click here.