Comment Text:
We thank the CFTC for meeting with us.
We wish to provide the following comments to the proposed amendment to Rule 1.35(a).
The assumption is that the amendment may more fully integrate Rule 1.35(a) within the framework created by the Dodd-Frank Wall Street Reform and Consumer Protection Act for swap dealers and major swap participants. With certain exceptions, the Rule which became effective on February 19, 2013 and for oral record keeping on December 21, 2013 has been claimed by some industry end users and CTAs as overly burdensome and inappropriate in its application. The CFTC's goals of promoting market integrity and consumer protection are in fact achievable without the proposed amendment to the Rule.
Voitrax is developing a software program which will provide records that are "identifiable and searchable by transaction", AND that all records can be kept in a form and manner that allows for identification of a particular transaction AND that records of oral and written communications provided or received concerning, "solicitations, bids, offers, instructions, trading, and prices that lead to the execution in a commodity interest..." can in fact be searchable and can in fact be kept in a form and manner that allows for the identification of a particular transaction.
Rule 1.35 was written because there was a hole that was acknowledged to exist within our ability to regulate financial institutions. Companies are asking for relief from the rule due to the cost concerns. Unfortunately that doesn't fill the existing hole. However, with low cost solutions, such as ours, these holes can be filled in the way that the original rule intended. Our solution scales to meet the size and compliance need of the companies that the CFTC determines are covered under this rule.
Additionally we have reviewed at great length the difference between searchable transactions and indexed transactions. We agree that at a low volume searchable transactions may provide the risk coverage that the rule is looking for, however at higher volumes searching becomes unfeasible. The cost benefit analysis proves out that indexing the calls with their transactions is cheaper than just having them searchable in the long run. Searching through a large set of data does not allow an auditor to see the whole process leading up to the transaction. Other than that, it requires a bevy of lawyers, which can easily overrun the cost of having a software company solve the rule at the outset. By adding the requirement to index the transactions, the CFTC enables any company to provide the data by simply searching through the index with no need for the lawyers.
As a software company we embarked on a solution for rule 1.35. Once we had already invested time and money on the solution, changes were proposed to the rule. If rules can be watered down, software companies will not risk creating solutions without some assurance that the rule will not be changed. This gives a perverse incentive to the market to not come up with a solution to problems. We have seen many times that rule 1.35 has been declared unsolvable. As we showed the CFTC it is solvable, it just required a software company to invest time and money, which others are reticent to spend before having commitment that the rule will not be watered down or changed. While we understand that our solubility is not the responsibility of the CFTC we think that our position is relevant to the consideration before the CFTC.
Other than that, changing the rule at this point also weakens the CFTC position as it allows companies to believe that with enough pressure they can avoid regulation.
The rule should be implemented as originally conceived, with exceptions only for the smallest players, where costs could be prohibitive. It is in the interest of the CFTC and the financial community, as well as the general public.
Thank You.
Craig Eagle, COO, Voitrax
Levi Orbach, CEO, Voitrax
