Transparency For Thee, But Not For GiGi
Gary Gensler has been an evangelist for transparency in derivatives markets. He has tirelessly argued that increasing transparency, especially in the OTC markets, will go a long way to making them more competitive and more efficient.
But Gensler apparently believes transparency works no such miracles for the operations of the CFTC. Energy traders (including the industry and the banks) are completely at a loss to explain the CFTC’s ominous special call for information about exchange of futures for swaps (and other related positions (Risk subscription required-unless you know the trick.) (I expressed my amazement at this ex post facto scrutiny when the story first broke.) Why is the CFTC giving EFS the stink eye after years of not merely acquiescing to them, but actively encouraging them as a way of putting energy trading back on its feet after the merchant energy meltdown of 2002-2003? Who knows? The CFTC isn’t saying. Hell, the CFTC isn’t even admitting that it is conducting an inquiry:
The notices contain no information about the CFTC’s motives – and a spokesman for the agency declines even to confirm the existence of the special calls – leaving dealers and their lawyers to guess why the regulator has sud-denly decided to probe a market that it helped set up over a decade ago. Part of the answer is that, however it may appear, this is not a sudden change of heart.
How’s that for transparency?!?
The Risk article does provide some interesting background on previous Commission attempts to crack down on certain kinds of EFS transactions. Failed attempts, I should emphasize, because the proposal could not get a majority of the commissioners to vote for it.
To me, EFS seem like a tremendous example of financial innovation that solved a serious problem in the energy markets and facilitated an objective that Gensler otherwise embraces enthusiastically: moving OTC transactions into clearing. The market success of this innovation speaks volumes about its value. It’s rather hard for me to see what’s objectionable about it.
But maybe I’m wrong. I’d be more than willing to entertain these objections. But in order to do that, I’d have to, you know, know what they are. Which would require some transparency from the Apostle of Transparency.
