I join my colleagues in thanking the staff for their hard work and efforts to advance these rules. This fall marks the seventh anniversary of the financial crisis and of the federal bailout of the nation’s largest financial firms. While the crisis and the bailouts had multiple causes, swaps were a key factor because of the way they could transmit risk between the large financial firms that traded them. Because of the size of the swaps marketplace and its concentration, failure in one part of the swaps world threatened to bring down the world’s largest financial firms like a row of dominos.[1]

In response to the 2008 crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act). One of its main purposes was to enable a large firm to fail without taking down innocent bystanders. Thus, the swaps sections located in Title VII of the Dodd-Frank Act (Title VII) place the largest swaps players — namely dealers and others with large positions (major swap participants) — under a regulatory umbrella that includes capital, margin, central clearing, reporting, and transparent trading. Title VII also sought to eliminate the abusive conduct and conflicts of interest in swaps that harmed investors and contributed to losses during the 2008 financial crisis.

In the rules before us today, we establish a process to register the dealers and major swap participants that come under the Commission’s security-based swap jurisdiction.[2] Finalizing the registration process is an important step toward putting in place the much needed regulatory structure that the Dodd-Frank Act mandated. In addition, today the Commission is proposing a procedure to grant waivers from automatic disqualification under Title VII, what I will refer to as a “bad actor” bar. This new proposal is important, because investors, market participants, and the Commission would benefit from a fair and transparent process for considering waiver applications.

Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants

I support the final rules on registration before us today. These new registration rules are fairly straightforward. They establish registration forms and certifications that the Commission needs to register entities that will be trading a large volume of security-based swaps. The new forms will provide the Commission with basic information needed to initially understand a registrant and begin to conduct oversight. The certifications will help create more accountability. A senior officer will have to certify to having developed and implemented policies and procedures to comply with the federal securities laws. The filings and certifications are a good starting point for the Commission’s examination and supervision of this new class of registrants.

While I am pleased that the Commission is adopting a registration process, I remain concerned about the pace at which the Commission is promulgating its swaps rules. Today’s rules do not become effective until the Commission completes an entire suite of other dealer-related rules. And, that is only the tip of the iceberg for accomplishing the Commission’s overall Title VII mandates. Rules on central clearing agency oversight, clearing requirements for products, and transparent trading platforms, among others, must be completed. What this means in plain English is that far too much remains to be done. And, in the interim, the American people remain far too exposed to firms that may still be “too interconnected to fail.”

I am pleased to hear this morning that we are aiming to complete our Title VII responsibilities sometime next year. But given the urgency of the situation, we must redouble our efforts to complete the suite of swap dealer rules as quickly as possible and get the rest of Title VII finished before another anniversary of the Dodd-Frank Act comes and goes.

Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Persons to Effect or Be Involved in Effecting Security-Based Swaps

Today, the Commission also is proposing new Rule of Practice 194 (Rule 194). This proposed rule would set up a procedure for requesting a waiver from Title VII’s “bad actor” bar. To put it simply, under Title VII a security-based swap dealer (or major swap participant) cannot work with individuals or firms who have engaged in misconduct. This would seem to be common sense.

Congress created “bad actor” bars to protect investors and the marketplace from those who have engaged in wrongdoing. Since I have been at the Commission, I have been advocating for the establishment of fair and transparent processes for those seeking waivers. Not only do fair and transparent processes focus the Commission on its investor protection duties, but they also provide clarity to market participants, and level the playing field between businesses big and small.

The overall structure of the process proposed today is one that I would like to support. It aims to establish predictable requirements and timetables for individuals and entities seeking waivers. Unfortunately, today’s proposal has a fatal flaw. By unconditionally recognizing waivers granted by other regulators and self- regulatory organizations,[3] it largely eviscerates the Title VII bar established by Congress. In fact, it renders the rest of the proposed process little more than a fiction.

As I have noted in the past, serious problems arise when persons or firms can use other regulators to make an end-run around the Commission’s disqualification regime.[4] First, it puts those regulators in difficult positions. Substantively, those regulatory bodies neither administer, nor are responsible for, the same laws and regulations. Practically, they also may have other regulatory or enforcement priorities. Moreover, the approach undermines the accountability we have to Congress and to the public. By endorsing it today, the Commission would abrogate its authority, for little reason other than to carve out wrongdoers from having to obtain waivers from the Commission. I cannot sign on to opening this loophole.

I look forward to receiving comment on all aspects of this proposal. As I have said, I would have liked to support a rule that establishes a fair and transparent process to handle new Title VII waiver applications. I would have liked to support a rule that establishes clear Commission accountability for the Title VII “bad actor” regime. But Rule 194, as proposed today, does neither. I cannot support it.

Thank you.