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CFTC's aggressive extraterritorial reach

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The Commodity Futures Trading Commission held a roundtable yesterday with global derivatives regulators. The meeting comes in response to widespread concern by foreign regulators about the CFTC's aggressive reach in its derivatives rulemaking under Dodd-Frank. Dodd-Frank ambiguously authorizes the CFTC to apply its rules to activities "that have a direct and significant connection with activities in, or effect on, commerce of the United States." Attempting to justify the CFTC's extremely broad reading of this vague statutory authority, at this morning's session, Chairman Gensler explained to his foreign counterparts that entities in their jurisdictions nearly brought down our financial system. Foreign regulators responded that they could make a reciprocal argument; our troubles seeped across the ocean to harm their financial markets too. Yet, they explained, practically speaking, they do not have the resources to regulate US financial markets. Moreover, they have some measure of respect for our national sovereignty, as we ought to have for theirs. The CFTC, which often celebrates its willingness to listen to comments, ought to apply the more pragmatic and deferential approach of the foreign regulators. Otherwise, the breadth of the CFTC's interpretation of its mandate will harm not only markets, but regulators' ability to oversee them.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.