A financial system that creates economic opportunities capital markets PDF room

U S D E P A R T M E N T O F T H E T R E A S U R Y A Financial System That Creates Economic Opportunities Capital Markets OCTOBER 2017 U S D E P A R T M E N T O F T H E T R E A S U R Y A Financial System That Creates Economic Opportunities Capital Markets Report to President Donald J Trump Executive Order 13772 on Core Principles for Regulating the United States Financial System Steven T Mnuchin Secretary Craig S Phillips Counselor to the Secretary Staff Acknowledgments Secretary Mnuchin and Counselor Phillips would like to thank Treasury staff members for their contributions to this report The staff’s work on the report was led by Brian Smith and Amyn Moolji, and included contributions from Chloe Cabot, John Dolan, Rebekah Goshorn, Alexander Jackson, W Moses Kim, John McGrail, Mark Nelson, Peter Nickoloff, Bill Pelton, Fred Pietrangeli, Frank Ragusa, Jessica Renier, Lori Santamorena, Christopher Siderys, James Sonne, Nicholas Steele, Mark Uyeda, and Darren Vieira iii A Financial System That Creates Economic Opportunities • Capital Markets Table of Contents Executive Summary Introduction     3 Scope of This Report    3 Review of the Process for This Report    4 The U.S Capital Markets    4 Summary of Issues and Recommendations    6 Capital Markets Overview  11 Introduction     13 Key Asset Classes     13 Key Regulators    18 Access to Capital  19 Overview and Regulatory Landscape     21 Issues and Recommendations     25 47 Equity Market Structure Overview and Regulatory Landscape     49 Issues and Recommendations    59 69 The Treasury Market Overview and Regulatory Landscape     71 Issues and Recommendations    79 83 Corporate Bond Liquidity Overview and Regulatory Landscape     85 Issues and Recommendations    87 Securitization 89 Overview     91 Regulatory Landscape    96 Issues and Recommendations    97 A Financial System That Creates Economic Opportunities • Capital Markets iv Derivatives 107 Overview     109 Regulatory Landscape    116 Issues and Recommendations    126 Financial Market Utilities 149 Overview and Regulatory Landscape     151 Issues and Recommendations    164 Regulatory Structure and Process 169 Overview     171 Issues and Recommendations    179 International Aspects of Capital Markets Regulation 187 Overview     189 Issues and Recommendations    190 Appendices  Appendix A: Participants in the Executive Order Engagement Process     193 Appendix B: Table of Recommendations     203 v A Financial System That Creates Economic Opportunities • Capital Markets 193 Acronyms and Abbreviations Acronym/Abbreviation Term ABS Asset-Backed Securities Agency MBS Agency Mortgage-Backed Securities ANE Arrange, Negotiate, or Execute ARRC Alternative Reference Rates Committee ATR Ability to Repay ATS Alternative Trading System BCBS Basel Committee on Banking Supervision BDC Business Development Company BNY Mellon Bank of New York Mellon CCAR Comprehensive Capital Analysis and Review CCP Central Counterparty CDO Collateralized Debt Obligation CDS Credit Default Swap CEA Commodity Exchange Act CEM Current Exposure Method CFTC U.S Commodity Futures Trading Commission CFMA Commodity Futures Modernization Act CHIPS Clearing House Interbank Payments System CLO Collateralized Loan Obligation CLOB Central Limit Order Book CMBS Commercial Mortgage-Backed Securities CME, Inc Chicago Mercantile Exchange, Inc CMG Crisis Management Groups CPO Commodity Pool Operator CPMI-IOSCO Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions CTU Central Treasury Unit DCM Designated Contract Market DCO Derivatives Clearing Organization A Financial System That Creates Economic Opportunities • Capital Markets vi DERA SEC Division of Economic and Risk Analysis DFAST Dodd-Frank Act Stress Test Dodd-Frank Dodd-Frank Wall Street Reform and Consumer Protection Act DtC Dealer-to-Client vii DTC Depository Trust Company DTCC Depository Trust and Clearing Corporation EC European Commission EGC Emerging Growth Company eSLR Enhanced Supplementary Leverage Ratio ETFs Exchange-Traded Funds EU European Union Exchange Act Securities Exchange Act of 1934 FCM Futures Commission Merchant FDIC Federal Deposit Insurance Corporation FHFA Federal Housing Finance Agency FIA Futures Industry Association FICC Fixed Income Clearing Corporation FINRA Financial Industry Regulatory Authority FMU Financial Market Utility FRB Federal Reserve Board of Governors FRBNY Federal Reserve Bank of New York FRTB Fundamental Review of the Trading Book FSB Financial Stability Board FSOC Financial Stability Oversight Council FTE Full-Time Equivalent (Personnel) FX Foreign Exchange FY Fiscal Year GAO U.S Government Accountability Office GSA Government Securities Act of 1986 GSD Government Securities Division (of FICC) GSE Government Sponsored Enterprise A Financial System That Creates Economic Opportunities • Capital Markets HFT High Frequency Trading HQLA High-Quality Liquid Assets HUD U.S Department of Housing and Urban Development IDB Interdealer Broker IOSCO International Organization of Securities Commissions IPO Initial Public Offering IRS Interest Rate Swap ISDA International Swaps and Derivatives Association IT Information Technology JOBS Act Jumpstart Our Business Startups Act JP Morgan JPMorgan Chase & Co JSR Joint Staff Report LCR Liquidity Coverage Ratio LIBOR London Interbank Offered Rate LPR Large Position Reporting LSEG London Stock Exchange Group MAT Made Available to Trade MBS Mortgage-Backed Securities MBSD Mortgage Backed Securities Division (of FICC) MiFID Markets in Financial Instruments Directive MSRB Municipal Securities Rulemaking Board NBBO National Best Bid or Offer NFA National Futures Association NMS National Market System NMS Stock ATSs Alternative Trading Systems that trade NMS stocks NRSRO Nationally Recognized Statistical Rating Organization NSCC National Securities Clearing Corporation NSFR Net Stable Funding Ratio NYSE New York Stock Exchange OCC Options Clearing Corporation (FMU) OCC Office of the Comptroller of the Currency (Regulator) OLA Orderly Liquidation Authority A Financial System That Creates Economic Opportunities • Capital Markets viii OTC Over-the-Counter ix PLS Private-Label Securities PTF Principal Trading Firm QIBs Qualified Institutional Buyers QM Qualified Mortgage QRM Qualified Residential Mortgage RFA Regulatory Flexibility Act RFQ Request for Quote SA-CCR Standardized Approach for Counterparty Credit Risk SDR Swap Data Repository SEC U.S Securities and Exchange Commission SEF Swap Execution Facility SFA Supervisory Formula Approach SIP Securities Information Processor SIFMA Securities Industry and Financial Markets Association SIFMUs Systemically Important Financial Market Utilities SLR Supplementary Leverage Ratio SPV Special Purpose Vehicle SRC Smaller Reporting Company SRO Self-Regulatory Organization SSB Standard Setting Body SSFA Simplified Supervisory Formula Approach TBA To-Be-Announced Market TCH The Clearing House Payments Company, L.L.C Title VII Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act Title VIII Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act TRACE Trade Reporting and Compliance Engine Treasury U.S Department of the Treasury USD U.S Dollar UTP Unlisted Trading Privileges A Financial System That Creates Economic Opportunities • Capital Markets Appendix B • Table of Recommendations Markets Structure and Liquidity Recommendation Policy Responsibility Congress Regulator Core Principle Equities 208 Regarding market data rules: • Treasury recommends that the SEC and FINRA issue guidance clarifying that broker-dealers may satisfy their best execution obligations by relying on securities information processor (SIP) data rather than proprietary data feeds if the broker-dealer does not otherwise subscribe to or use those proprietary data feeds • Treasury suggests that the SEC consider whether proposed selfregulatory organization (SRO) rules establishing data fees are “fair and reasonable,” “not unreasonably discriminatory,” and an “equitable allocation” of reasonable fees among persons who use the data • Treasury recommends that the SEC consider amending Regulation NMS as necessary to enable competing consolidators to provide an alternative to the SIPs SEC, FINRA C, F Treasury recommends that the SEC consider amending the Order Protection Rule to give protected quote status only to registered national securities exchanges that offer meaningful liquidity and opportunities for price improvement Treasury recommends that the SEC consider amending the Order Protection Rule to withdraw protected quote status for orders on any exchange that not meet a minimum liquidity threshold Treasury recommends that the SEC should consider proposing that any newly registered national securities exchange receive the benefit of protected order status for some period of time SEC C, F In order to reduce complexity in equity markets, Treasury recommends that the SEC review whether exchanges and alternative trading systems (ATSs) should harmonize their order types and make recommendations as appropriate SEC C, F Treasury recommends that the SEC adopt amendments to Regulation ATS substantially as proposed but revise aspects of the proposal to: (1) eliminate unnecessary public disclosure of confidential information, (2) require disclosure of confidential information only to the SEC and only if it would improve the SEC’s ability to oversee the industry, (3) ensure that disclosures related to conflicts of interest are tailored to provide useful information to market participants, and (4) simplify the disclosures to reduce the compliance burden and to increase their readability and comparability across competing ATSs SEC C, F A Financial System That Creates Economic Opportunities • Capital Markets Appendix B • Table of Recommendations Markets Structure and Liquidity Policy Responsibility Recommendation Congress Regulator Core Principle Treasuries Treasury recommends closing the PTF data granularity gap by requiring trading platforms operated by FINRA member broker-dealers that facilitate transactions in Treasury securities to identify the customers in reports to TRACE of Treasury security transactions SEC, FINRA C, G Treasury supports the Federal Reserve Board’s efforts to collect Treasury transaction data from its bank members FRB C, G To further the study and monitoring of the Treasury cash market, Treasury recommends that the CFTC share daily its Treasury futures security transaction data with Treasury CFTC C, G To better understand clearing and settlement arrangements in the Treasury interdealer broker (IDB) market and the consequences of reform options available in the clearing of Treasury securities, Treasury recommends further study of potential solutions by regulators and market participants SEC B, C Congress FRB, FDIC, OCC D, F Congress FRB, FDIC, OCC, SEC, CFTC C, F, G Treasury reiterates its recommendation from the Banking Report to amend regulation to improve the availability of secured repurchase agreement (repo) financing Corporates Treasury reiterates its recommendations from the Banking Report to improve secondary market liquidity A Financial System That Creates Economic Opportunities • Capital Markets 209 Appendix B • Table of Recommendations Securitization Recommendation Policy Responsibility Congress Regulator Core Principle Capital Treasury recommends that banking regulators rationalize the capital required for securitized products with the capital required to hold the same disaggregated underlying assets FRB, FDIC, OCC C, F Treasury recommends that U.S banking regulators adjust the parameters of both the simplified supervisory formula approach (SSFA) and the supervisory formula approach (SFA) • The p factor, already set at a punitive level that assesses a 50% surcharge on securitization exposures, should, at minimum, not be increased • SSFA should recognize the added credit enhancement when a bank purchases a securitization at a discount to par value • Regulators should align the risk weight floor for securitization exposures with the Basel recommendation FRB, FDIC, OCC C, D, F Treasury recommends that bank capital requirements for securitization exposures sufficiently account for the magnitude of the credit risk sold or transferred in determining required capital instead of tying capital to the amount of the trust consolidated for accounting purposes FRB, FDIC, OCC C, F Treasury recommends that regulators consider the impact that trading book capital standards, such as fundamental review of the trading book (FRTB), would have on secondary market activity Capital requirements should be recalibrated to prevent the required amount of capital from exceeding the maximum economic exposure of the underlying bond FRB, FDIC, OCC C, F Treasury recommends that the Federal Reserve Board consider adjusting the global market shock scenario for stress testing to more fully consider the credit quality of the underlying collateral and reforms implemented since the financial crisis FRB C, F FRB, FDIC, OCC C, F Liquidity Treasury recommends that high-quality securitized obligations with a proven track record receive consideration as level 2B high-quality liquid assets (HQLA) for purposes of the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) Regulators should consider applying to these senior securitized bonds a prescribed framework, similar to that used to determine the eligibility of corporate debt, to establish criteria under which a securitization may receive HQLA treatment 210 A Financial System That Creates Economic Opportunities • Capital Markets Appendix B • Table of Recommendations Securitization Policy Responsibility Recommendation Congress Regulator Core Principle Risk Retention Treasury recommends that banking regulators expand qualifying underwriting exemptions across eligible asset-classes through notice-and-comment rulemaking FRB, FDIC, OCC C, F Treasury recommends that collateralized loan obligation (CLO) managers who select loans that meet prespecified “qualified” standards, as established by the appropriate rulemaking agencies, should be exempt from the risk retention requirement FRB, FDIC, OCC C, F Treasury recommends that regulators review the mandatory five-year holding period for third-party purchasers and sponsors subject to this requirement To the extent regulators determine that the emergence period for underwritingrelated losses is shorter than five years, the associated restrictions on sale or transfer should be reduced accordingly SEC, FRB, OCC, FDIC, FHFA, HUD C, F Treasury reiterates its recommendation that Congress designate one lead agency from among the six that promulgated the Credit Risk Retention Rulemaking to be responsible for future actions related to the rulemaking Congress C, F Disclosures Treasury recommends that the number of required reporting fields for registered securitizations be reduced Additionally, Treasury recommends that the SEC continue to refine its definitions to better standardize the reporting requirements on the remaining required fields SEC C, F Treasury recommends that the SEC explore adding flexibility to the current asset-level disclosure requirements by instituting a “provide or explain regime” for prespecified data fields SEC C, F Treasury recommends that the SEC review the three-day waiting period for registered deals and consider reducing, dependent on securitized asset class SEC C, F Treasury recommends that the SEC signal that Reg AB II asset-level disclosure requirements will not be extended to unregistered 144A offerings or to additional securitized asset classes SEC C, F A Financial System That Creates Economic Opportunities • Capital Markets 211 Appendix B • Table of Recommendations Derivatives Recommendation Policy Responsibility Congress Regulator Core Principle Harmonization Between CFTC and SEC Treasury recommends that the CFTC and the SEC undertake and give high priority to a joint effort to review their respective rulemakings in each key Title VII reform area The goals of this exercise should be to harmonize rules and eliminate redundancies to the fullest extent possible and to minimize imposing distortive effects on the markets and duplicative and inconsistent compliance burdens on market participants • As part of this review, the SEC should finalize its Title VII rules with the goal of facilitating a well-harmonized swaps and security-based swaps regime • This effort should also include consideration of the prospects for alternative compliance regimes — for example, a framework of interagency substituted compliance or mutual recognition — for any areas in which effective harmonization is not feasible • Public comment should be part of this process Treasury recommends that Congress consider further action to achieve maximum harmonization in the regulation of swaps and security-based swaps Congress CFTC, SEC D, F, G Margin Requirements for Uncleared Swaps Treasury recommends that U.S regulators take steps to harmonize their margin requirements for uncleared swaps domestically and cooperate with non-U.S jurisdictions that have implemented the Basel Committee on Banking Supervision-International Organization of Securities Commissions (BCBSIOSCO) framework to promote a level playing field for U.S firms • The U.S banking agencies should consider providing an exemption from the initial margin requirements for uncleared swaps for transactions between affiliates of a bank or bank holding company in a manner consistent with the margin requirements of the CFTC and the corresponding non-U.S requirements, subject to appropriate conditions • The CFTC and U.S banking regulators should work with their international counterparts to amend the uncleared margin framework so it is more appropriately tailored to the relevant risks • Where warranted based on logistical and operational considerations, the CFTC and the U.S banking agencies should consider amendments to their rules to allow for more realistic time frames for collecting and posting margin • The CFTC and the U.S banking regulators should reconsider the onesize-fits-all treatment of financial end users for purposes of margin on uncleared swaps and tailor their requirements to focus on the most significant source of risk • Consistent with these objectives, the SEC should repropose and finalize its proposed margin rule for uncleared security-based swaps in a manner that is aligned with the margin rules of the CFTC and the U.S banking regulators 212 A Financial System That Creates Economic Opportunities • Capital Markets CFTC, SEC, D, F Banking Agencies Appendix B • Table of Recommendations Derivatives Policy Responsibility Recommendation Congress Regulator Core Principle CFTC Use of No-Action Letters Treasury recommends that the CFTC take steps to simplify and formalize all outstanding staff guidance and no-action relief that has been used to smooth the implementation of the Dodd-Frank swaps regulatory framework This should include, where necessary and appropriate, amendments to any final rules that have proven to be infeasible or unworkable, necessitating broadly applicable or multiyear no-action relief CFTC F, G CFTC, SEC D, F Cross-Border Issues Cross-border Application and Scope: Treasury recommends that the CFTC and the SEC provide clarity around the cross-border scope of their regulations and make their rules compatible with non-U.S jurisdictions where possible to avoid market fragmentation, redundancies, undue complexity, and conflicts of law Examples of areas that merit reconsideration include: • whether swap counterparties, trading platforms, and CCPs in jurisdictions compliant with international standards should be required to register with the CFTC or the SEC as a result of doing business with a U.S firm’s foreign branch or affiliate; • whether swap dealer registration should apply to a U.S firm’s non-U.S affiliate on the basis of trading with non-U.S counterparties if the U.S firm’s non-U.S affiliate is effectively regulated as part of an appropriately robust regulatory regime or otherwise subject to Basel-compliant capital standards, regardless of whether the affiliate is guaranteed by its U.S parent; • whether U.S firms’ foreign branches and affiliates, guaranteed or not, should be subject to Title VII’s mandatory clearing, mandatory trading, margin, or reporting rules when they trade with non-U.S firms in jurisdictions compliant with international standards; and • providing alternative ways for regulated entities to comply with requirements that may conflict with local privacy, blocking, and secrecy laws A Financial System That Creates Economic Opportunities • Capital Markets 213 Appendix B • Table of Recommendations Derivatives Recommendation Policy Responsibility Congress Regulator Core Principle Cross-Border Issues 214 Substituted Compliance: Treasury recommends that effective cross-border cooperation include meaningful substituted compliance programs to minimize redundancies and conflicts • The CFTC and SEC should be judicious when applying their swaps rules to activities outside the United States and should permit entities, to the maximum extent practicable, to comply with comparable non-U.S derivatives regulations, in lieu of complying with U.S regulations • The CFTC and the SEC should adopt substituted compliance regimes that consider the rules of other jurisdictions, in an outcomes-based approach, in their entirety, rather than relying on rule-by-rule analysis They should work toward achieving timely recognition of their regimes by nonU.S regulatory authorities • The CFTC should undertake truly outcomes-based comparability determinations, using either a category-by-category comparison or a comparison of the CFTC regime to the foreign regime as a whole • Meaningful substituted compliance could also include consideration of recognition regimes for non-U.S CCPs clearing derivatives for certain U.S persons and for non-U.S platforms for swaps trading CFTC, SEC D, F ANE Transactions: Treasury recommends that the CFTC and the SEC reconsider any U.S personnel test for applying the transaction-level requirements of their swaps rules • The CFTC should provide certainty to market participants regarding the guidance in the CFTC arrange, negotiate, execute (ANE) staff advisory (CFTC Letter No 13-69), which has been subject to extended no-action relief, either by retracting the advisory or proceeding with a rulemaking • In particular, the CFTC and the SEC should reconsider the implications of applying their Title VII rules to transactions between non-U.S firms or between a non-U.S firm and a foreign branch or affiliate of a U.S firm merely on the basis that U.S.-located personnel arrange, negotiate, or execute the swap, especially for entities in comparably regulated jurisdictions CFTC, SEC D, F A Financial System That Creates Economic Opportunities • Capital Markets Appendix B • Table of Recommendations Derivatives Policy Responsibility Recommendation Congress Core Principle Regulator Capital Treatment in Support of Central Clearing Treasury recommends that regulators properly balance the post-crisis goal of moving more derivatives into central clearing with appropriately tailored and targeted capital requirements • As a near-term measure, Treasury reiterates the recommendation of the Banking Report and calls for the deduction of initial margin for centrally cleared derivatives from the SLR denominator; and recommends a risk-adjusted approach for valuing options for purposes of the capital rules to better reflect the exposure, such as potentially weighting options by their delta • Beyond the near term, Treasury recommends that regulatory capital requirements transition from CEM to an adjusted SA-CCR calculation that provides an offset for initial margin and recognition of appropriate netting sets and hedged positions • In addition, Treasury recommends that U.S banking regulators and market regulators conduct regular comprehensive assessments of how the capital and liquidity rules impact the incentives to centrally clear derivatives and whether such rules are properly calibrated Banking Agencies, CFTC, SEC D, F CFTC F CFTC, SEC D, F Swap Dealer De Minimis Threshold Treasury recommends that the CFTC maintain the swap dealer de minimis registration threshold at $8 billion, and establish that any future changes to the threshold will be subject to a formal rulemaking and public comment process Definition of Financial Entity To provide regulatory certainty and better facilitate appropriate exceptions Congress from the swaps clearing requirement for commercial end users engaged in bona fide hedging or mitigation of commercial risks, Treasury would support a legislative amendment to CEA Section 2(h)(7) providing the CFTC with rulemaking authority to modify and clarify the scope of the financial entity definition and the treatment of affiliates • Such authority should include consideration of non-prudentially regulated entities that currently fall under subclause VIII of CEA Section 2(h)(7)(c)(i) — i.e., entities that are “predominantly engaged… in activities that are financial in nature” — but which might warrant exception from the clearing requirement if they engage in swaps primarily to hedge or mitigate the business risks of a commercial affiliate • Such authority should also be flexible enough to permit, for example, the CFTC to formalize its no-action relief for central treasury units (CTUs) in a rulemaking • Further, any exceptions provided by the CFTC under such authority should be subject to appropriate conditions and allow the CFTC to appropriately monitor exempted activity The conditions could include, for example, making the exception dependent on the size and nature of swaps activities, demonstration of risk-management requirements in lieu of clearing, and reporting requirements Any legislative amendment should provide the SEC analogous rulemaking authority under Exchange Act Section 3C(g) with respect to exceptions from the clearing requirement for security-based swaps A Financial System That Creates Economic Opportunities • Capital Markets 215 Appendix B • Table of Recommendations Derivatives Recommendation Policy Responsibility Congress Core Principle Regulator Position Limits Treasury recommends that the CFTC complete its position limits rules, as contemplated by its statutory mandate, with a focus on detecting and deterring market manipulation and other fraudulent behavior Among the issues to consider in completing a final position limits rule, the CFTC should: • ensure the appropriate availability of bona fide hedging exemptions for end users and explore whether to provide a risk management exemption; • consider calibrating limits based on the risk of manipulation, for example, by imposing limits only for spot months of physical delivery contracts where the risk of potential market manipulation is greatest; and • consider the deliverable supply holistically when setting the limits (e.g., for gold, consider the global physical market, not just U.S futures) CFTC D, F CFTC D, F CFTC, SEC F SEF Execution Methods and MAT Process Treasury recommends that the CFTC: • consider rule changes to permit swap execution facilities (SEFs) to use any means of interstate commerce to execute swaps subject to a trade execution requirement that are consistent with the “multiple-to-multiple” element of the SEF definition (CEA Section 1a(50)) Such rule changes should be undertaken in recognition of the statutory goals of impartial access for market participants and promoting pre-trade price transparency in the swaps market; • reevaluate the MAT determination process to ensure sufficient liquidity for swaps to support a mandatory trading requirement; and • consider clarifying or eliminating footnote 88 in its final SEF rules to address associated market fragmentation Swap Data Reporting Treasury supports the CFTC’s newly launched “Roadmap” effort, as announced in July 2017, to standardize reporting fields across products and SDRs, harmonize data elements and technical specifications with other regulators, and improve validation and quality control processes • Treasury recommends that the CFTC secure and commit adequate resources to complete the Roadmap review, undertake notice and comment rulemaking, and implement revised rules and harmonized standards within the timeframe outlined in the Roadmap • Treasury recommends that the CFTC leverage third-party and market participant expertise to the extent necessary to develop a coherent, efficient, and effective reporting regime 216 A Financial System That Creates Economic Opportunities • Capital Markets Appendix B • Table of Recommendations Financial Market Utilities Policy Responsibility Recommendation Congress Treasury recommends that U.S regulators that supervise systemically important financial market utilities (SIFMUs) bolster resources for their supervision and regulation, and that the CFTC be allocated greater resources for its review of CCPs Treasury also recommends that the agencies study how they can streamline the existing advance notice review process to be more efficient and appropriately tailored to the risk that a particular change presented by a SIFMU may pose Congress Regulator Core Principle FRB, CFTC, SEC D, F Treasury recommends that the Federal Reserve review: (1) what risks are posed to U.S financial stability by the lack of Federal Reserve Bank deposit account access for financial market utilities (FMUs) with significant shares of U.S clearing business and an appropriate way to address such risks; and (2) whether the rate of interest paid on SIFMUs’ deposits at the Federal Reserve Banks should be adjusted based on market-based evaluation of comparable private sector opportunities FRB B Treasury recommends that future central counterparty (CCP) stress testing exercises by the CFTC incorporate additional products, different stress scenarios, liquidity risk, and operational and cyber risks, which can also pose potential risks to U.S financial stability CFTC B Treasury recommends that U.S regulators continue to take part in crisis management groups (CMGs) to share relevant data and consider the coordination challenges that domestic and foreign regulators and resolution authorities may encounter during cross-border resolution of CCPs CFTC, FDIC, B, E SEC Treasury recommends that U.S regulators continue to advance American interests abroad when engaging with international standard setting bodies such as The Committee on Payments and Market Infrastructures of the International Organization of Securities Commissions (CPMIIOSCO) and Financial Stability Board’s (FSB’s) work streams CFTC, SEC, FRB, FDIC E A Financial System That Creates Economic Opportunities • Capital Markets 217 Appendix B • Table of Recommendations Regulatory Structure and Processes Recommendation Policy Responsibility Congress Regulator Core Principle Restoration of Exemptive Authority Treasury recommends that Congress restore the CFTC’s and SEC’s full exemptive authority and remove the restrictions imposed by Dodd-Frank Congress F, G Improving Regulatory Policy Decision Making 218 Treasury reaffirms the recommendations for enhanced use of regulatory cost-benefit analysis discussed in the Banking Report for the SEC and the CFTC CFTC, SEC C, F, G Treasury recommends that the CFTC and the SEC, when conducting rulemakings, be guided by the Core Principles for financial regulation laid out in Executive Order 13772, as well as the principles set forth in Executive Orders 12866 and 13563, and that they update any existing guidance as appropriate CFTC, SEC C, F, G Treasury recommends that the agencies take steps, as part of their oversight responsibilities, so that self-regulatory organization (SRO) rulemaking take into account, where appropriate, economic analysis when proposed rules are developed at the SRO level CFTC, SEC C, F, G Treasury recommends that the CFTC and the SROs issue public guidance explaining the factors they consider when conducting economic analysis in the rulemaking process CFTC, SROs C, F, G Treasury encourages the CFTC and the SEC to make fuller use of their ability to solicit comment and input from the public, including by increasing their use of advance notices of proposed rulemaking to better signal to the public what information may be relevant CFTC, SEC C, F, G Treasury recommends that the CFTC and the SEC conduct regular, periodic reviews of agency rules for burden, relevance, and other factors CFTC, SEC C, F, G Treasury supports the goals of principles-based regulation and recommends that the SEC and the CFTC consider using this approach, to the extent appropriate and consistent with applicable law CFTC, SEC F, G Treasury believes that the CFTC and the SEC should continue their joint outcomes-based effort to harmonize their respective rules and requirements, as well as cross-border application of such rules and requirements CFTC, SEC D, E, F, G Treasury recommends that the CFTC and the SEC avoid imposing new requirements by no-action letter, interpretation, or other form of guidance and consider adopting Office of Management and Budget’s Final Bulletin for Agency Good Guidance Practices CFTC, SEC C, F, G A Financial System That Creates Economic Opportunities • Capital Markets Appendix B • Table of Recommendations Regulatory Structure and Processes Policy Responsibility Recommendation Congress Regulator Core Principle Improving Regulatory Policy Decision Making Treasury recommends that the CFTC and the SEC take steps to ensure that guidance is not being used excessively or unjustifiably to make substantive changes to rules without going through the notice and comment process CFTC, SEC C, F, G Treasury recommends that the CFTC and the SEC review existing guidance and revisit any guidance that has caused market confusion and compliance challenges CFTC, SEC C, F, G Treasury recommends that the agencies undertake a review and update the definitions so that the Regulatory Flexibility Act analysis appropriately considers the impact on persons who should be considered small entities CFTC, SEC C, F, G Treasury recommends that the CFTC and the SEC conduct comprehensive reviews of the roles, responsibilities, and capabilities of the SROs under their respective jurisdictions and make recommendations for operational, structural, and governance improvements of the SRO framework CFTC, SEC C, F, G Treasury recommends that the agencies identify any changes to underlying laws or rules that are needed to enhance oversight of SROs CFTC, SEC C, F, G Treasury recommends that each SRO adopt and publicly release an action plan to review and update its rules, guidance, and procedures on a periodic basis SROs C, F, G Self-Regulatory Organizations A Financial System That Creates Economic Opportunities • Capital Markets 219 Appendix B • Table of Recommendations International Aspects of Capital Market Regulation Recommendation 220 Policy Responsibility Congress Regulator Core Principle Treasury recommends that U.S regulators and Treasury sustain and develop technical level dialogues with key partners, informed by previous outreach to industry, to address conflicting or duplicative regulation CFTC, FDIC, FRB, OCC, SEC, Treasury D, E Treasury recommends that U.S regulators seek to reach outcomesbased, non-discriminatory substituted compliance arrangements with other regulators or supervisors with the goal of mitigating the effects of regulatory redundancy and conflict when it is justified by the quality of foreign regulation, supervision, and enforcement regimes, paying due respect to the U.S regulatory regime CFTC, SEC D Treasury recommends that U.S members of standard-setting bodies (SSBs) continue to advocate for and shape international regulatory standards aligned with domestic financial regulatory objectives CFTC, FDIC, FRB, OCC, SEC, Treasury E Treasury recommends that U.S agencies should continue to regularly coordinate policy before as well as after international engagements CFTC, FDIC, FRB, OCC, SEC, Treasury E Treasury recommends that U.S agencies to work in international organizations to elevate the quality of stakeholder consultation globally CFTC, FDIC, FRB, OCC, SEC, Treasury D, E A Financial System That Creates Economic Opportunities • Capital Markets M O ENT F THE EASURY 89 A Financial System That Creates Economic Opportunities Capital Markets TR E DEPA TH RT U S TREASURY 2017-04856 (Rev 1) • Department of the Treasury • Departmental Offices • www.treasury.gov D E P A R T M E N T O F T H E T R E A S U R Y A Financial System That Creates Economic Opportunities Capital Markets OCTOBER 2017 ... A Financial System That Creates Economic Opportunities • Capital Markets Access to Capital Access to Capital • Overview and Regulatory Landscape Overview and Regulatory Landscape Access to capital. .. insurers and property and casualty insurers Financial Accounts of the United States 20 ICI Fact Book, at 14 A Financial System That Creates Economic Opportunities • Capital Markets Capital Markets. .. Issuance and Trading Volume (July 2017), available at: http://www2.sifma.org/research/statistics.aspx A Financial System That Creates Economic Opportunities • Capital Markets Capital Markets Overview