INSIGHT: CFTC delivers on 'Project KISS' with proposal to streamline regulations for swap dealers

NEW YORK (Thomson Reuters Regulatory Intelligence) - Since taking the helm of the U.S. top commodities and derivatives regulator, Christopher Giancarlo has made his ambitions clear to refocus and reinterpret the mission of the Commodity Futures Trading Commission (CFTC). Regulatory change occurs at a snail’s pace but nearly a year into Giancarlo’s chairmanship, there are signs of progress.

J. Christopher Giancarlo Chairman, U.S. Commodity Futures Trading Commission, speaks at the Milken Institute 21st Global Conference in Beverly Hills, California, U.S. April 30, 2018.

The CFTC announced (here) recently efforts to streamline regulations for swap dealers and help end users. The regulator said it will "give firms more authority over their own reporting and compliance duties."

In a proposed rule{here}, unanimously backed by the commission, the CFTC moved to address the complexity of rules adopted under the 2010 Dodd-Frank giving counterparties the right to request that their funds be segregated from other accounts at a swaps dealer. It said the existing rules provided little benefit and deterred end-users from exercising their segregation rights.

“By adding greater flexibility in how the swap parties can comply with the notification, segregation and custody requirements, the commission hopes to encourage more counterparties to take advantage of segregation, and to avoid unnecessary complication and interference with swap transactions that are essential for hedging and other commercial needs,” the CFTC release said.

The move follows calls for progress earlier this year from within the commission, and is in keeping with Giancarlo’s aims to reshape the agency. Giancarlo, who had served as a commissioner since 2014, became acting chair in January 2017 and was sworn in as chairman in August 2017.


Giancarlo made his ambitions clear at a Futures Industry Association conference in March 2017(here), where he spoke of his plans to streamline regulation and restructure the CFTC's market surveillance branch.

In outlining his agenda, he unveiled plans to create a “chief market intelligence officer” role to help oversee new trends and technology. He also launched “Project KISS” which stands for “Keep It Simple Stupid,” an agency-wide review of CFTC rules, regulations, and practices.

“Project KISS is not about identifying rules for repeal. It is about taking our existing rules and applying them in ways that are simpler, less costly and less burdensome,” Giancarlo said at the time.

Giancarlo has also repeatedly voiced concerns(here) about the global swap market and harmonization challenges between international and U.S. regulations. The challenges associated with swaps reform are complex and have taken time to unfold.

In May, Democratic CFTC Commissioner Rostin Behnam spoke of what he called a lack of progress at the agency. Speaking at a Futures Industry Association conference, he said, “We’ve been waiting for deliverables” citing Project KISS, harmonization of swap regulations and other initiatives.

The proposed segregation rules, which grew out of feedback received through the Project KISS initiative, are a concrete step toward addressing some of the concerns raised by Behnam and an example of Giancarlo’s regulatory direction.


Among the regulatory initiatives Giancarlo has taken, besides Project KISS(here), is LabCFTC(, an effort to promote financial technology collaboration.

Giancarlo also appointed Andrew Busch as the Chief Market Intelligence Officer. His role is to stay on top of industry trends and lead the agency’s efforts and oversight in areas including cryptocurrencies and the launching of futures trading in bitcoin.

One of Giancarlo’s top concerns has been the rules for swap execution facilities (SEFs), more precisely, a need to reform swaps trading and SEFs, particularly the harmonization of rules with European SEFs. Without it, U.S. traders and banks could not use European swaps venues.

He has pledged that the swaps execution rules “will be equivalent and suitably consistent with European regulations.” He has also expressed a recognition of the challenges faced in achieving harmonization, complicated by Britain’s Brexit project to leave the European Union.


In April 2018, Giancarlo laid out a more definitive roadmap for swaps reform, which attempts to address many of the challenges including European harmonization. The document, Swaps Regulation Version 2.0: An Assessment of the Current Implementation of Reform and Proposals for Next Steps, was unveiled at the International Swaps and Derivatives Association (ISDA) annual meeting{here}.

Giancarlo said he was committed to a deliberative rule-writing process he described as “ready, aim, fire.” He said the regulator was committed to getting back to regular order after a rush of Dodd-Frank regulation; it had an ambitious timetable but would take the necessary time to get it right.

The white paper addressed five key areas; swaps central counterparties, reporting rules, execution rules, swap dealer capital, and end-user exceptions.

Swaps clearing is perhaps the most extensive and consequential of all the swaps reform efforts. Swaps data reporting under mandates from Dodd-Frank related to counterparty credit risk is also important. The CFTC also sees itself as a global leader in swaps reporting but faces difficult challenges of harmonization with international regulators, particularly in reforming swaps trading and SEFs. Giancarlo has said that he envisions that SEFs “will be equivalent and suitably consistent with European regulations.”


To address some of the challenges in the white paper, and in conjunction with Project KISS, the CFTC proposed the new segregation rules, with a 60-day public comment period. The need for such rules emerged from industry consultations under Project KISS, the CFTC said.

The 2010 Dodd-Frank Act allows swaps dealers to segregate into separate accounts the initial margins put up by their clients, if the clients request.

Part of the proposal allows for more flexibility in custodial arrangements and margin investment, and leave the terms “up to commercial negotiation by professional trading counterparties.” It would remove specifications on how the segregated margins would be invested.

“The CFTC has observed that the requirements related to segregation of initial margin collateral have been difficult and burdensome for swap dealers to satisfy,” Giancarlo said in a statement that accompanied the proposed segregation reforms. “They have also caused confusion by end-user counterparties. Thus, the burden associated with the overly complicated regulatory requirements have resulted in very few swap counterparties exercising their right to segregate. These observations were supported by responses in Project KISS.”

The CFTC said, “The proposal aims to better implement the intent of CEA Section 4s(l) while simplifying or eliminating certain additional requirements not required in the statute.”


Last fall, Giancarlo told the Financial Times in London, “As someone who was appointed by both President Trump and President Obama, my position on these markets is not going through sudden change. It’s actually quite consistent.”

Giancarlo has undoubtedly put forth and ambitious agenda and is now showing signs of progress with the proposed rules. Look for Giancarlo and the CFTC to move forward on other items in the white paper on Swaps 2.0 as well as automated trading as they are likely still very much on the agenda. However, rulemaking and rule revising is a lengthy and difficult process — changes will take time.

Although Giancarlo and the rest of the commission appear to be on the same page with the unanimous vote, and their views and priorities are becoming better known, compliance departments should remain diligent with their compliance efforts as future changes are likely to take time and talk of relief is just that until it is actually codified by the regulator.

(Todd Ehret is a Senior Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence based in New York.)