..

so the u.s. was unaware when of these payments one. senior officials at hsbc headquarters at blonden from 2001 to 2007 new that affiliate's in england and the middle east, the h. b. m e were sending undisclosed payments through their accounts but didn't stop them or in a forum where them of the extent of the activity so they knew that there affiliate's were hiding key information from each other. at hbus they were on notice as early as 2001 that the stripping was occurring and took no decisive action to stop the war. they stopped occasional wire transfers from iran but the words, quote, do not use our name in new york.

so, first one mr. bagley, the european and middle east affiliate's, why wasn't hbus told? what possible justification is there for not telling an affiliate that the key information so they can comply with their own law to be removed >> it's a very good question, senator. my understanding of the position was that hbu was checking each one of those transactions to ensure that they were compliant and i was always advise to that

they were compliant. when i first focused on this issue, which was i think in mid 2003 although there were indications in the e-mails before that. i emphasized and recommended that there should be full transparency given to hbus so that they could check the compliance themselves. >> was it? >> it wasn't. >> so is exhibit 55 says simply eloquently, dramatically, you're own people, quote, were being asked to fudge the nature of the payments to avoid the u.s. embargo and seizure. that's exhibit 55.

then you are not the only one there was some comfortable with this piece of business. people in this bank, this global bank were being asked to fudge the nature of the payments to avoid the u.s. embargo and seizure, he added it's pretty shocking stuff. now, from 2,003, 2002 to 2003. hsbc affiliate's continue to send tens of thousands of these undisclosed transactions through hpus. exhibit 1-c is a chart that shows the members. so even though the hsbc group

was unnoticed as early as 2001 with hsbc affiliate's rescinding these transactions through their accounts in the u.s. nobody did anything to stop it for years. mr. bagley, an 2003 du become the head of compliance through the entire group. earlier that month the middle east of delhi at sent them a memo laying out the business case there was a substantial income opportunity coming in here is what you wrote in 2003. the business case includes a number of express references to practices which may constitute a breach of u.s. sanctions. but then in october 2003, this

is exhibit 48, one of your attorneys and group compliance wrote for to you that six banks were processing the u.s. dollar payments and that the payments were being altered by them before going to the hbus. he said that it is removing the remitters name. breaching the u.s. sanctions as a serious matter and as the head of compliance you are making that point. when you learned that it was removing the names of the pyrenean banks, why was not the practice simply stopped right then worth the hassle but that hindsight is clearly took too long to resolve. but i can say is that it came to my attention very clearly recommended all transactions should be compliant should be

made in a way in which hbus was comfortable with and that recommendation when the relevant for to the senior management within the group. >> how long did it take? >> i think as you have indicated, there were various discussions between different parts of the group, and i think that we progressively started to introduce transparency into the payments in 2006. >> so the would be about what, three years? >> far too long. >> but three years? >> if you turn transactions, this is fully compliant and fully transparent i would make the point is illegal and nobody here is reclaiming illegalities.

but if one of these -- and this is perdue mr. bagley of one of the payment wasn't compliant with the u.s. law, who is responsible? >> ultimately i anticipate that the transaction passing through the u.s. bank may expose the u.s. bank risk if there was the maligned intent than it could expose the risk as well. >> in this regulation called hsbc, is it fair from one profit center to put another profit center that that kind of risk not only is it fair, is it the right thing to do petraeus pletka don't think it is fair or the right thing to do which is why it is transparency so that

hbus could satisfy itself, but i would like to stress that at all times we were told and believe that those transactions were compliant and unlawful and that there was a process when people seriously tried to ensure within hbu the transactions cent were compliant. >> so it is your feeling and you can't know this fact because you haven't looked at all of them but it is your feeling that none of these transactions, they saw no transparency on, it is your testimony that you feel they all met with the intent with that our government says if you are going to run it through the u.s. dollar banks that he that to limit that expectation? >> i don't think i can say that all of those transactions were. there were people seeking bate

the were incompliant. the >> they were within hbu. >> who is the head of the processing unit? >> i can't recall the name. >> who could recall that? >> i'm sure we could find -- >> would you do that for the committee, please? i would love to have that name during the questioning this afternoon because that is a key point. either they were legitimate or they were not one. >> i believe that the results have been conducted

>> i think after a very long

time compliance had agreed to resume their relationship. i mean, the u.s. side. but it took a long time. this file before coming here, the dialogue started in may. the decision was made in new york. so it will be resuming trading in december. >> okay. thank you. >> thank you. take a look at exit 58, if you would. when denise riley of h-p u.s. rates to theresa, hpv u.s., money laundering director. this so-called east wood memo which was referring to alterations to remove references

to iran. that memo was discussed at a meeting with you, mr. gallagher. so, this is dated december december 17th, 2003. the question is, when you learned that h-p you with sending these hidden iranian payments you cite as a problem. you said so. the real question is what steps did you take to stop the practice? ..

hands of the hsbc bid prospectus didn't to which this needed to be elevated were in fact contained in this memo. i don't recall my specific discussions here, but i would have to speculate they would be consistent with my prior positions which is an abundance of caution. >> so you objected in 2001 to the practice, but by 2003 you were the head of the hbus payment and cash management position. why not just pick up the phone in 2003, called the number of hsbc group and just raise hell? why not do that? >> well certainly --

>> whoever was supposed to be taking care of it wasn't taking care of it. >> with the benefit of hindsight that is exactly what i should have done and we have learned the lesson we should have been louder sooner and more broadly in the organization. >> let me ask you about an exhibit 84 be. >> you were the head of hbus bank note business that supplied physical u.s. dollars to financial and institutions around the world. some of your clients to put it mildly didn't install confidence or were opposed by the compliance or the division or they sought to subject them to

special antimoney laundering. you often opposed those recommendations and use a few examples. 84b is one. this is an e-mail exchange in 2005. this was about whether to classify a particular bank note client as a special category client, so-called sec which means that a high risk client that undergoes additional scrutiny. hbus described the bank as one in which, quote, the senior management and employees have been involved in numerous significant instances of corruption, fraud and embezzlement over the past few years and recommended that it be classified as a special category

client sec. you responded as follows. quote coming yes, corruption can be rampant in this bank but it is not unique to that bank. so you oppose the sec designation. now, the hbus compliance officer for bank notes daniel jack described the bank as government-owned in a high-risk country with a politically expos person which is someone who requires enhanced due diligence and reputation of risk due to corruption, etc.. this is now exit 84 and he recommended an sec designation and your response, quote, this is such a large bank pence malfeasance is expected. however, you wrote, i do not

agree that just on these numerous breaches the bank should be classified. so your position is that malfeasance is to be expected in a large bank so they don't even bother to do additional antimoney laundering. in exhibit 82 this is from 2007. in this e-mail chain the bank notes colleagues asked if you would be willing to help open a bank note account for the es salaam bangladesh which is partly owned by the saudi arabian bank was closed by hd u.s. in 2005 for the terrorist financing reasons also impart in 2007 to hbus reopened that

account. i am happy to be the relationship manager if this is an account worth chasing. how much money do you expect to make from the same? then when you were told the account would produce about $75,000 in revenue per year you wrote the money is there and we should go from this account. and where the global relationship and manage mur and. so your test apparently for opening an account was first how much revenue it would produce. what about the second test? what about the test the the bank is involved in wrongdoing whether it is terrorist financing, corruption on malfeasance? why were those factors enough for you to say we are not going to do it? >> mr. treen, let me try to explain what happened.

that was about that decline. the thinking was china is a different country from a lot of other countries. its own characteristics this bank is actually shared the same statistics as the other banks house well. but on this particular point my point at this time was if it was a unef compliance that means the other banks should also be subject to the same reading. >> why not all banks where corruption is rampant? why shouldn't they all be subject to the rating?

>> first i have to apologize the colorful birds that use. it wasn't appropriate -- >> of public choice to whom? >> to give the impression by was tolerant of this malfeasance. that's why i said it is not the right word to use. >> i'm afraid it was the right word to use. the corruption was rampant. if you believe it was. >> it's a very large organization just like the other organizations. when you have such a large bank there are bound to be cases of malfeasance. another thing -- >> you didn't really mean what you said that there was rampant. is that what you are saying? it wasn't unique to that bank so you were inaccurate in your e-mail? senate i'm sorry? >> did you express what you

believe that time? >> looking back -- >> did that express what you meant it at that time? >> at that time, yes. but i need to qualify that statement which is to say that e-mail came forward. i was overwhelmed by this feeling that if the bank were to be that would be the other banks with the sec and at that time, china was a country that the group itself looked at as a very important market. so one of the elevated issues i copied my colleagues in london bringing in the compliance that take a look at this abbas what i was trying to do at that time. >> what about your exhibit 848? >> here you are recommending you proceed despite the fact that the compliance officer from the bank notes daniel jack described as a government-owned bank in a

high risk country with politically exposed persons that required due diligence and a reputation all risk. that's to you, your bank due to corruption and your recommendation was ahead anyway. your malfeasance is expected. i don't agree that just on these numerous breaches the bank should be classified whether it is given the enhanced review did that reflect your view at the time? did you believe when you wrote that time? >> at that moment, yes. >> what about this bank? when you said you seem to be interested how much money will it make for us? how much money can we expect 75,000 in revenues and then you say we ought to go for it? he will be happy to wear the hat on the global relationship.

you are the head of the bank notes department and when your employees see those kind of remarks in your e-mails what kind of an impact do you think it has on their willingness to consider compliance issues with deciding whether to open an account for a potentially lucrative but high risk client? what do you think the effect of those words are and your employees? >> as the chairman, i agree that is -- this is not portraying the right image, not even the right message. looking at a message right now. >> for the record of the e-mail didn't say it was rampant, it said it can be rampant, and some of the realism of the world we live in global commerce if you take this particular bank, and this is not a defense that if

you look at their own bank in mexico, it looked like it could be rampant there as well, and he certainly found that it could be rampant. we have a better understanding mr. chairman of what i done. someone taught me a long time ago greed tends to conquer all technological difficulties and so, we are about antimoney laundering. that is what this hearing is about, and it's not the accusation of illegalities. it's the accusation of poor judgment and mistakes inside a very large and very successful organization i would just say one is i appreciate the candor of the witnesses today.

a very difficult issue. i am still concerned even though it said there were 79 accounts they couldn't account for in terms of the year terms. i still think it is a difficult issue in the world is dealing with a terrorist state like iran and we are allowing them the flexibility. so, my hope is that we can learn some things and i know hsbc certainly has, and i appreciate the witness' testimony. >> thank you, dr. colburn. i think i read the e-mail correctly. i will read it again. yes, corruption can be rampant in this bank but it is not unique to the bank. so i think it speaks for itself if at one point i said he said it is rampant instead that yes it can be and it is not unique

your quote is exactly right and the one i just read is exactly right but there is not much difference between it can be rampant and it's not unique to the point was of this question and mr. glock's answer.

>> we thank our witnesses, and again, we appreciate the cooperation with this investigation of your bank, and we will -- [inaudible conversations] [inaudible conversations]

>> we are going to recess until 2:00 and we think our witnesses and you are discharged. monetary policy this week.

former secretary of state madeleine albright and colin powell sat down for a discussion about american foreign policy and a dinner in washington hosted by the u.s. global leadership coalition. this is a half-hour. ♪

>> what a pleasure it is to share this small intimate friend for gathering with to such amazing national servants who often so much. i have had the opportunity to talk to you both in many settings, so i am very much looking forward to how -- and to connect the dots this evening in terms of america's role in the world of making the case for diplomacy and development and where you see this going. psychiatry albright, i want to start its hot in washington now. strange season. you are famous for so many things. especially those pinsky where tells about the pains you wear. >> i am wearing a fraud tonight.

either because we have to leap over the problems that plague this particular budget or to make sure that foreign assistance doesn't croak. [laughter] >> secretary all right, let's start with you. >> one of the reasons when we were both on the principles committee and he would walk in with all of his medals and i was a mere mortal female civilian i figured i needed some help. [laughter] >> a lot of metals and pens which they deserve. >> secretary all right, let's talk about what -- and dig into this a little bit. you know, when you were thus

secretary, there were serious efforts in congress to cut back on the foreign affairs budget agencies. there were some members of congress that boast about not having passports. that seems to be very different now. there seems to be a different tone. there seems to be a different appreciation. do you share that perception and if so, why do you think that has happened? >> first of all i think an awful lot has to do with the people be honored tonight. senator leahy and senator gramm. it makes a difference when you have leaders in the committee that can push everything forward and the contras and and i talked today. so i do think that the leadership is a very important part. i have been fighting the battle making sure that the foreign assistance budget or that international organization budget even get through. i worked for the chairman of the budget committee, and then i get congressional relations for the national security council during

the carter administration where i decided that the words for them and assistance should never go together. that in fact it was an issue as to why would we give the taxpayers? i do think that there is an agreement about the importance of american leadership. i think that that is a very important part. i think that there is a disagreement about how the american leadership is deployed and under what circumstances and what programs we were gone but i think thanks to the coalition who has been remarkable in this, i think that we have been pushing it. i'm not sure that i fully agree that there is complete bipartisan agreement on how the american leadership should be deployed. therefore we have to keep working in order to make sure there we see democracy development and defense coming together. >> secretary powell. you have certainly lead both the

state department and you make the case from both places and what is interesting to think about is how so many military leaders have spoken out in this regard whether it is secretary leon panetta, segregates before about congenital petraeus. why do you think the military feels and expresses its feelings so strong and eloquently for this kind of expenditure? >> i think we've always felt that way. i think we become more vocal in their recent years. >> why? >> as we see the kind of situations we found ourselves in. i can go back to the panel of 1989 and worked my way forward when we realize just having a military battle that he won as of the end of the game. perhaps we should have done more at the beginning to avoid the battle in the first place or having won the battle, how we then create the peace and preserve the peace. i think we have to be careful when we talk about these terms, such as smart power or hard

power or soft power. it reminds me of a conversation i had with a former archbishop in 2003. you might have been there. it was on the eve of the gulf war, the second gulf war the archbishops stood up and said we don't we just use soft power light of the have to use hard power, and was a critique of what we were getting ready to do. the answer that i gave is that it wasn't soft power that rescued brereton from italy from hitler. it was hard power. and you have to have elements that when we won with hard power world war ii we then applied soft power in both asia and germany creating democracy. and so, the importance of this question what makes what we are doing here tonight so very important is that we understand that we needed all. but we have been shortchanging

the software that translates into soft power much too long. for years i have been hearing the same thing. only less than one per cent goes to this but it doesn't change. evin until we have more people as informed as lindsey graham and pat leahy who understand that in the world we're living in in the international environment where we are competing at so many different levels not so much military levels as they are levels of economics, levels of development , what we are doing to help people in the parts of the world wondering is america there for us until we start to invest in that part of the power equation, america isn't meeting its bodies and its own standards to the rest of the world. [applause] >> he said something very, very important just now and it would be a great challenge to senator leahy and senator gramm when they are doing their job and

that is we need it all and america would say to you we can't afford all and that is the case then you need to make is that this is an investment that this is taking place in a changed world where borders mean different things and national security means different things. how hard is that to do? >> it is in the national security interest countries are able to develop that they are able -- people are able to live in people's lives that values are translated and that when something happens terribly in some country it does come home to america. so, i see it in many ways as a national security interest and sometimes it has to be argued on that basis, national security support. then there are also a lot of constituencies in the country that see it differently. we talked about the religious community. i think they have been the fifth based community has been very supportive because they don't want to see people suffered, and we have always talked about the

assistance to the poorest of the poor and i think you have to present it to the different constituencies in the language that makes sense to them. it is not that much money. it really is not. i know senator gramm is talking about how long it takes the taxpayer to people to generate but the return to america of people that can buy american goods or that have a sense of security and are able to be developed democracies i think is something that we can afford. we are a rich country richer than anybody else, and we have to make that argument clearly. >> keep this in terms of investment, don't you? >> it is very affordable. one of the problems i had as the chairman it was set up as a competition between the defense spending and foreign assistance in the state department spending. >> when you said it was a competition you mean in the hill? >> he said he wanted to take money from the defense in the state department you realized it

was idiotic. >> i would like to have been there. >> as the chairman of the joint chiefs of staff as well peaceful ways of conflict we shall do that and it takes investment, it takes working with nations i democratic pack. it takes investing in clean water, economic development come in and helping people come out of poverty so they see a better life. and we are the inspiration for that life. this is how you avoid conflict. if one comes i want to make sure we know how to get their right but i would rather avoid it. islamic if we look at the audience and think about the conversation tonight the u.s. leadership question that has been done here, the message is clear there's a tremendous disconnected scenes with the public e3% of the american

public say we should pay less attention to problems overseas and concentrate on problems here at home. maybe the way the question was phrased put that as a buy and mary choice which it is not. but how do we address that? >> we have to be smarter in terms of explaining the problem in your previous profession doesn't really help. [laughter] >> whatever are you talking about. >> this isn't such a simple subject that you can breaking news explain why it is so important, and i do think that we have a stake in having people understand that our security depends on security abroad there isn't such a thing as far away that it is all very close. >> that has been resolved for years to suggest that the american people think ten, 20% of the budget is going to foreign assistance, and it's not. it's less than one.

but the world has also changed in the last 20 years. what are the chinese doing? they're going around the world using their smart power, their soft power to secure their mineral resources, to secure farmland or food for the chinese people. they are using their wealth, they are using their influence around the world to challenge us. we still are the inspiration for the rest of the world, and if we are going to be the inspiration for the rest of the world, this is what democracy is about to the this is what human-rights are all about. we have to put our money behind it and i think the case can be made to the american people that we are a wealthy country. we can afford this. and one of the major changes with respect to the pentagon and the state department, i think there is more realization now on the part of the military commanders but we need to perhaps even give up part of our somewhat good budget at the defense department even if it means some it is the department for some foreign assistance.

when we had these difficulties in iran and afghanistan recently, and they said we need the state department, we need a i.t.. welcome guess what? there is in that much state department to send to these places. we ought to be doubling the size of the foreign service. >> doubling the size? >> dillinger the size of the foreign service. doubling the size. >> this is not in incremental. this is exponential. >> there is so much work to be done and not just for afghanistan and iraq. there are so many things we could be doing around the world right now to bring people out of disease, out of poverty as we have been given credit this evening, madeleine's work with president clinton a lot has been done to read a lot more can be done to make this a better and safer world that will serve our interest. >> when senator leahy was speaking this book about accountability and i should say i think we should recognize once

again senator leahy and senator gramm for your accomplishment. [applause] and i will for a window when i was a young radio reporter in vermont in 1977, senator leahy then was making the case that his dairy farmers i remember the conversation his dairy farmers in vermont for selling products and the machine-tool industry in vermont was selling overseas. >> i think we were introduced by caterpillar. the certainly in fact made money and do well by exporting products and somebody on the other side had to buy them and it's not an accident that a large number of people in this audience are business people. they are doing what benjamin franklin said, doing well by doing good, and the bottom line is that in fact that is the best part of the coalition. [applause] >> what senator leahy spoke

about is a degree of accountability to make this case and i would like to ask you both what he feels needs to be done to make this diplomacy, this investment that you want to double more effective going forward. >> we should demand accountability. >> what does that mean? >> it means the average citizen is paying taxes to send overseas to help these people and therefore, we should expect them in the full of the commercial law to act in a way that is sensible and appropriate for what they are receiving from us. so there is no problem in my mind anyway to demand the highest levels of accountability, and sticking with the rules of law. the challenge corporation which was a major initiative with george w. bush's administration said we would invest in those countries that has demonstrated that they are committed to the

rule of law they are going to end corruption and had a sensible program to use this money but people are wasting their money in the heck with that. we don't deserve -- the american people shouldn't expect that. >> let me do what i enjoy doing so much to put you on the spot little bit. >> your secretary of state today. we have a fiscal cliff that we keep hearing about that we are facing. we may have sequestration of our military. we may have another downgrade. who knows where this is going to go. but you have to go up on the hill and make the case for dillinger this, you are for spending more. how would you do that today? >> i think i would make very clear that the security of the united states depends on the fact of lust having friends around the world and countries that we're people are able to live a decent life and where in

fact there is not an environment that terrorists can take it vantage of. there is no direct line between poverty and terrorism that it doesn't take a lot of imagination to think that people that are completely alienated from their society are more wheat credible and you have to make a very hard case. as a suggestion made is very good that we need to have accountability in government. it's harder said than done -- d.c. here said than done in many ways because sometimes we have to give to the countries that are on the verge of changing. and i do think the corruption is the cancer of the whole operation and the question is how one fact you get the institutional structures that make these reliable in countries, but i think we have to put it flat on the line that americans are better off when other countries do not have people that are susceptible to being corrupted or taken over bye terrorist organizations. >> i would also make the

argument -- [applause] >> the cold war is over. there is no pure competitor with any intent or capability to threaten the continued existence of the united states of america. we are in a different kind of competition in the world right now. but we still are that nation that gives inspiration to the rest of the world to people that are still striving for freedom and democracy. and when i see you what the chinese are doing for example and the of to many of their own problems, but i see what they are doing with their power, with their influence, their soft power, not so much they're hard power but the soft power, i would say to my friends in congress, we have got to be out there on that playing field people are looking to us. what we do to help them clean water. but reading to help educate the children getting access to the electronic revolution that is taking place? this is an hour interest.

it is an economic model. the most powerful political force at work today is economics, not the size of the army but who is creating the most wealth for their people, and we have to participate in that world, and that world requires more investment in the soft power part of soft power. >> i think we also have to make an even larger argument. we are sitting in a building named for ronald reagan. and inside this building is the willson institute, woodrow wilson. is their anything more bipartisan than that combination? [laughter] >> one of the largest buildings in washington. >> but i think one of the issues here, you are talking about the cliff, there's more than foreign aid. we are completely bound up by the arguments that are going on in the city that are embarrassing to the position of the united states in the world. i am the chairman of the board of the national democratic

institute. we go and we talk about what democracy is about. and when we see one of the major aspects of democracy is compromise, and they say yeah, like you guys. so the bottom line is -- >> and you say what? >> well, we've got a problem. >> the bottom line is we have a huge issue in terms of -- i agree our issue is what is economic security, what does it depend on and it depends on us straightening out the budget situation and people have to pay taxes. [applause] >> let me second that because it is one of my consistent themes these days. washington cannot keep operating the way that it has been. the simple message i gave is our founding fathers could come together in philadelphia 77 and deal with some of the most remarkable issues, the most difficult issues imaginable

coming yet in a couple of months and a hot room they could settle the differences through compromise. compromise which creates a consensus and create a nation and write a constitution you are telling me that the united states congress can't even figure out how to get a sequestration monstrosity? [applause] >> it's really remarkable and i think most everybody in this room and most everybody that has troubled the world has had an experience like that some place. i remember and i will never forget this as long as i live. near martial law poland as it was throwing off communist joke on a was in this restaurant with practically no food, and i was speaking english with another copied and a man heard me speaking english clearly i was an american from across the room. he reaches into the breast pocket of his kind of red t-shirt and pulls out an old american dollar bill, kisses the dollar bill and says america is good in this burr sent english.

this is a country that does stand for something. this is about how this project and how we follow through on that investment. i want to ask about something you both talk about and has been discussed a lot here which is the role of the private sector. we have heard from several people from corporate america. corporate america is making money overseas. corporate america is growing overseas and partnering with the government overseas. how should that work and how should that look, how important is that? >> the private sector is essential because public-private partnerships are one of the best ways to move the process forward in terms of helping the country where which we are trying to help in terms of investments, and also if i might say so, american private sector companies in terms of their health policies, their labor policies, their approach to the environmental issues i discovered when i was the secretary of state are among our best ambassadors and so private public partnerships are very important. i am now getting something

called the partners for the new beginning that secretary clinton asked me to head for the coca-cola vice chair as the sector of the private sector that really is able to do a lot of good in partnership with of the government with our government and of the government overseas, and there is a profit motive to doing it to really think corporate social responsibility works along with having good business. i think it's vital. >> the great wealth of the nation is in the private sector. and it's the private sector that is spread throughout the old now creating products and other countries, moving production facilities and other countries not to get away from american outsources, -- >> that is what a lot of people might say. part of the pushback. i see this globalized world. i don't have a job. i might lose my job. this scares me. >> of course we are going through a perk of transformation

that the reality is it is a global economic system we are in. there's no longer an american company that isn't also a global company and we have to understand what this dynamic is all about coming and the challenge we have is educating our population for what is a new economic system that we are living in. and if we don't do that, and haven't talked about it but we lk about what we're going to do in other countries i tell you something if we don't fix our education system here in the united states, we are into get left behind. [applause] so i mentioned in the outset that we are in the middle of this campaign season i might ask you both if you miss it, if you would like to be on the road. >> i actually am. i am trying to help everybody that believes in what this country is about, believes our government can be functional and is willing to be in congress and

try to figure out how to get us out of this particular situation. i think poland by the way is very clear. we are the friends and we have done a lot of things together. and i think we both agree on the fact that we are wrapped around the axle of the moment, and we need people that want to come to washington to solve the problems, not create the problem. >> and if you are campaigning today and you are speaking on behalf of this priority that we are discussing tonight, american leadership and development and diplomacy, what does the campaign speech sound? >> it says first and foremost a remember it is economic development. the most powerful political force at work in the world today, not the size. what we have to do is fix our economy. and do whatever that takes with government policies, fiscal policies and corporate policies. it's really going to be fixed by america's businesses and

corporations. second, we have to do something with our immigration policy. we can't pretend that we are not a nation of immigrants. we always have been. it's been our greatest strength. we don't understand the importance of the system. [applause] the internalize that early this year the majority of the youngsters born in america are born of immigrant minority families. and in one generation the majority of americans would be another so-called diverse culture. but the only nation on earth who can handle something like this. ..

n dunn just blamed teachers in schools. the entire community has and responsibility. [applause] >> of years ago six weeks before the last election you gathered, the two of you, with three other former secretaries of state at the george weston university for conversations we enjoy together. i ask you at the time what was your advice to the next president, your comment, your message to the next president. everybody had an answer. you had the best one, and it was , remember. he wanted this job. [laughter] what is your message to the next president for what we will face, what this country will face a

big thing about this changing world, this more diverse world, this more globalized world? >> well, i think that i am looking at a sign there that says invest in our future. i think that our next president, who is the same president that we have now. [laughter] >> or the other one is running. >> but i basically believe that that is the message home. it is very important. i agree with colin powell on education. there has to be -- there has to be explanation of why the policy are an investment in the future and not trying to undo the past and that the issue here is how to make sure that america, as always, is looking forward? i do think that is our strength. so that would be my message. it is policies that really invest in our future across the

board and our future depends on the stability and security of people in other countries. that is the hard message. it isn't just us. we are all together in this, and we have to invest also in the future of other countries to make ourselves more secure. >> and your message to the next president? >> we tried this last time to, if you'll recall. >> my message, and what i try to do as i traveled around the country and speak is talk about american values, talk about the unique place that america occupies on the world stage. a question i get all the time, we still number one? my answer is not like we used to be. there is no number two, three, and for the reid used to be 15, 16, and 17. turner has risen. other nations are rising. a think that's terrific. bringing people up out of poverty. i tell all my audiences, if i can use a reagan asked expression, we of the shining

city on the hill, place the people look to for inspiration. we must never lose that position. so i would say to the next president first and foremost before we can fully occupied that shiny place on the hill, we have to fix our economy. our people are not happy. the economy is not doing what we think it should do. the other thing i would point out to the president is, somehow you have got to find a way to get beyond the political fighting that is taking place in this town. they have been out to mike going after the president in a very personal way, not just policy, but for the purpose of destruction, but for destruction we have got to get past this politics of destruction, and we have got to also, mr. president, i don't know how you do this, but you have to figure a way to bring the american media system under

control so that it is concerned with informing us and not just fighting for market share and the latest story of the day about what britney spears is jack. >> i will join you with that. i think we need to tell the story. we need to tell it imaginatively , creatively, positively to amend responsibly. we need to engage. i would like to thank you. general, secretary, thank you for a thoughtful, candid, and remarkable conversation. thank you both. [applause] [applause] >> ladies and gentlemen, please welcome the president and ceo of the international rescue committee and the u.s. global leadership coalition co-president. ♪

>> on washington journal tomorrow morning, we will talk about defense spending with south carolina republican representative joe wilson. chairman of the house armed services subcommittee, military personnel. democratic representative bill passed growth of new jersey will take your questions about federal spending and tax cuts. a member of the budget and ways and means committee. and we will focus on the cost of health care with amanda bennett, executive editor at bloomberg news and a contributor for newsweek magazine. washington channel is live on c-span every day at 7:00 a.m. eastern. >> it was about those men and women who are almost mortally injured and more, who because of the huge it advances that have been made in medical trauma treatment over the last ten

years, an incredible number of them are being saved. almost everybody who falls on the battlefield is being saved, but i wanted to write about what life was like for these people, and i really started off with a question, having seen some people who were pretty, pretty gruesomely named to my be better off if there were dead? don't waste that there were dead? >> and beyond the battlefield, his 10-part pulitzer winning series for the huffington opposed and in the subsequent e-book. david wood spoke with vets and their families on the daily struggles for the severely wounded in military operations. learn more sunday at 8:00 p.m. on c-span q&a. >> there has been a hostility to poverty. since the war on poverty lyndon johnson was the best president

and looked at poverty issues and spend money on it and talked about the social service program. lyndon johnson. let's follow that by, i hate to say this, but richard nixon is father of minority business development. inside his minority business, the small business of ministration, minority business development agency and use the term economic justice. richard nixon, economic justice. >> the former president peggy lee read some comments on politics, education, and african american economic history. live sunday, august 5th at noon eastern your questions, calls, e-mails command tweet for the author of surviving and thriving, 365 facts and black economic history. in debt august on a c-span2 book tv. u.s. futures regulator and acknowledged that the regulatory system failed to protect

customers of peregrine financial group which collapsed last week with its founder admitting to $100 million of fraud. mr. ganz look who heads the commodity futures trading commission testified tuesday at a senate hearing looking into the impact of new financial regulations. the committee also heard from an sec regulators and representatives of the derivatives industry. this is two hours and 20 minutes. >> good morning. it we will call to order the committee on agriculture, commission, and forestry. we welcome our witnesses and every one that turned us today. let me say at the beginning for our first panel we have agreed because of the importance on a number of issues and we will be talking about today to do two rounds. we will be giving each member seven minutes around. we will have some additional time to be allowed to have a full discussion today. it has been two years since congress passed the dodd-frank lawsuit reform and consumer

protection act. in that time there has been an open rule making process with multiple of virginities for public input. as i said before, it is extremely important that we get the rules done right. recently the joint definition rule was made final, which along with the entity definition greuel starts the clock on compliance. this is a significant step toward greater transparency and final implementation of key provisions of the law. i appreciate the commission's work to finalize the end user will. we are still waiting on a number of significant rules to be made final. including those on capital and margin, clearing and trading block trading, conflicts of interest, swap execution facilities. with no question it is important to coordinate the rules between agencies and harmonize them internationally. it is also critical to get them down.

how many rules are still -- while some many rules are still on written many derivatives are still trading in the dark. some financial institutions are still taking risks that threaten our economy. if anyone is wondering why we need these rules to all you have to do today is turn on the dais. there is a rate setting scandal, the eurozone crisis, the demise of peregrine financial group, a significant trading losses and the mf global bankruptcy. and you can't blame people for thinking what is next? we need these markets to have integrity. market participants need certainty so that they can plan for compliance and make business decisions for the coming months and years. job-creating companies and farmers and ranchers need to know that these markets are safe , for trading and hedging their risk.

again, american families need to know that their jobs and not point to disappear again because of excessive risk-taking by reckless you. understand, there have been significant hurdles. we have some proposals to defund the agency's charge of protecting our market. even as events at home and around the globe continue to highlight the need for effective oversight. we cannot forget that when this law was passed we were on the brink of a global economic crisis. a crisis that left 8 million americans out of work, home mortgages on the water, and small businesses closed forever. despite the challenges i know that the individuals charged with writing these rules have been working very hard in the face of great challenges and difficulty, and i would like to commend everyone involved and their staff for what i know has been a tremendous amount of our

work. i'm eager to hear from our witnesses today about where we are in the rulemaking process, what challenges we are facing as they try to complete these rules and what this committee can do to support those efforts. so, again, i would welcome both of our first witnesses. we appreciate your efforts and leadership. i would now turn now to senator robert. >> thank you, madame chairwoman. okay. let's get started here. thank you, madame chairwoman. i thank you for calling this hearing this morning to discuss the dodd-frank bill two years after it has become law. first in light of the situation you brought up, madame chairwoman, very appropriately. the cftc knew about it back in 2008. i have serious concerns why it has taken until the end of the chairman's term for the cftc to act. this is 2012, four years after

the commission was first made aware of the potential reporting this committee and the american taxpayers deserve an explanation . typically two years after a major piece of legislation like dodd-frank is passed we would hear an update from stakeholders about how the laws affecting the real world. we would hear from the agencies in charge in implementing the law about the things that our congress did well and, for sure, some of the things that we might need to consider changing. when it comes to dodd-frank stakeholders are still confused and frustrated and begging to be told what is expected of them. the courts have already thrown out a major role for adequate cost-benefit analysis and other rules of being challenged on the same basis. the agencies are here today to explain why they apparently cannot cooperate and why it is taking them over two years to figure out a way to cooperate with the rest of the world. here we are two years later and we still have no plan, the cftc

has told no one how it plans to coordinate the implementation of the over 30 rules and thousands and thousands of pages of new regulations it is created. no one knows all these rules will fit together or how much, if any court nation that has been between the agencies in charge of implementing dodd-frank domestically or internationally. of want to be very clear on this point domestic callers are not opposed to the certainly it goes along with dodd-frank mandate. swaps be cleared. in fact among many firms have already spent millions of dollars in an effort to be ready to implement the dow freckles. what these folks want and what they have been asking for these past few years is certainty and direction from the cftc as to what they need to do toward implementing what commissioners our's is properly labeled chairman gangs was intergalactic commerce clause of regulation. the problem is that no one knows what the chairman's plan is. the chairman's plan to years

later is disjointed, incomplete command now we find out it is just interpreted. therefore not enforceable by law regardless, the cftc is about to initiate its 60 day countdown to implementation. in doing so, potentially sets in motion a series of events that will send for the shockwaves of uncertainty through our derivatives users and the industry. what happens at the end of the 60 days which should be on or about october 1 when our domestic users of derivatives, add to national regulators to more international users of derivatives and the ready? will the commission offer waivers? will participants simply pay massive fines and enforcement actions by the cftc? is the cftc about to create its own system of systemic risk? if this were not enough, the cftc is not doing their job, in my opinion, of what it was created to do, to police the

financial streets. it appears as though the chairman cftc is too busy working on this intergalactic plan to have a conversation with anyone, including fellow commissioners or the securities and exchange commission about implementing recommendations in the aftermath of the imf global bankruptcy. now, the chairman said a unique president by taking in nonparticipating role and wanted to step aside from his relationship in the investigation of enough global. i understand that, but he made it clear to other cftc commissioners, staff, and outside parties you wanted to keep control of the recommendations that came out of the investigation. my question, especially in light of the failure of peregrine last week, the second major failure of this nature on his watch, where are the recommendations? investors domestic callers, and others need confidence in the system. commissioner amelie has said it well when he called for using the best, most innovative, and

least burdensome tools to meet the regulatory and is laid out in the commodity exchange act. the chairman should be focused on doing exactly that and overseeing their rules on the books rather than requesting new multitudes of staff and looking for justification to regulate the world, any entity doing business with u.s. person, therefore, the world. with regulations we have seen labeled interpreted and not enforceable by law. madame chairwoman the mileage for to hearing from the chairman on how will and the spaceship and how he plans to work with the sec and the real world a frustrated words takeovers to implement what dodd-frank contended. thank you. >> thank you very much. we certainly have a lot of things to discuss today, and we welcome both of you for being here. let me first introduce our first panelist. the chairman of the commodities futures trading commission as we know and has led the effort to implement provisions most importantly title seven of

dodd-frank into the derivatives marketplace. pride his appointment mr. king's lawyer help to a one is with the treasury and the clinton administration. served as undersecretary of the treasury for domestic finance and assistant secretary of the treasury for financial markets. we welcome the chairman. let me also introduce our second panelist, robert cut. mr. cook is the director of the division of trading and markets at the securities and exchange commission. mr. cook has oversight of the standards for fair and orderly, and efficient markets. a nationwide leading practitioner on broker-dealer and market regulation. we welcome you this morning as well, and we will start with the chairman. >> good morning, chairwoman. ranking member, members of the committee. thank you for inviting me here to talk about the swaps reforms. i also want to comment on the recent events related to

peregrine. the commission has made significant progress in implementing congress's common-sense rules of the row bring transparency and lowering risk in the swaps market. four years after the fact and two years after the passage of the dodd-frank act americans are still struggling from the worst economic crisis experienced since the great depression. 8 million americans lost their job. millions of families lost their homes, and thousands of those. with 35 rules completed, we are increasingly moving from the rule writing process to the implementation of reforms, and i look forward to discussing that with this committee. a ranking member roberts questions, very good questions, want to go through. light will begin to is shine on the swaps market this fall when a around october swaps price and volume information will be publicly reported for the first time in real time. regulators would get their first full window into these markets. swap dealers will begin to register provisionally at first, under comprehensive regulation,

and aggregate spot month position limits will apply to both futures and swaps. we look forward to completing of the swaps market reforms this year, including those related to determining swaps must be cleared and pretreat transparency to prevent competition. as we finalize a cross border guidance we will recall the lessons of past crises. financial transactions executed offshore by u.s. financial institutions often send risk right back to our shores. true in the london and cayman island affiliate's of aig, lehman brothers, a city, bear stearns, and a decade earlier long term capital management, affiliate's in london and came crashing back here. the recent events of jpmorgan chase, again, what they call at the london well? executed in the london branch. a stark reminder. the live wire index at the center of the capital markets is but another example of globally interconnected financial system.

hundreds of trillions of dollars of derivatives transactions here and abroad are based. people taking a small business loans, credit cards, mortgages, often in the fine print there is a reference to this terrible rate. as well as big companies doing complex transactions. what to their reliance on? the honesty of this benchmark. banks must not attempt to influence or others. they can't do it if they're concerned about the reputation. you can't do it if you're concerned about profitability. it's just wrong and against the law. so, if these key benchmarks are based on the observable transactions among borrowers, lenders, derivatives, and users benefit. if there are not based on honest we all lose. before i close i like tech review the recent events. the cftc filed of federal action .

the firm's owner was arrested and charged criminally. simply put, the evidence alleged in these cases that mr. watson door and puzzled millions of dollars, manufactured phony bank statements about forged signatures, and created fake bank addresses. the charges against him are that he took customers' funds right out of the bank and lied about for years. peregrine futures commission merchant register at the cftc. national futures association, a self-regulatory organization responsible for front-line oversight is required to conduct periodic audits. in addition, there has to be an annual review by an independent cpa. to cite the police cannot prevent of bank robberies, market regulators cannot prevent of financial fraud. having said that, the system failed to protect the customers, and we all must do better. the commission has been actively working to improve protections of customer funds.

we finalize for supper critical roles in this regard. we also worked with the national futures association and futures industry for these last seven or eight months in finalizing last week rules that aren't new, common-sense rules to protect customers. the cftc has been implementing significant restructuring oversight of intermediaries. we hired new leadership in this division and set up a new examination group nine months ago. looking forward to my believe it's critical that we further update all rules, giving regulators direct electronic access to all bank accounts and custodial accounts. now, we don't yet know the full facts of the circumstances, but we are committed at the cftc to conduct a full review of the cftc and the self regulatory functions examination and on it over said a futures commission merchants looking openly for further improvement. we must do that. we must do everything within our authority and resources to strengthen our oversight

programs and the protection of customer funds. i look forward to taking your questions. >> welcome. >> ranking member roberts and members of the committee, good morning. my name is robert cut. director of the securities and exchange commission division of trading and market. thank you for the opportunity to testify regarding title seven of the doubt for a gatt. as you know, a title seven creates an entirely new regulatory regime for over-the-counter derivatives and directs the ftc and cftc to write a number of rules to implement this regime. the sec has authority over security base wops while the cftc has authority over all other swaps which comprise of the overwhelming majority of the product subject to 07. my testimony will provide an overview of the sec efforts to implement at 07 focusing on development of the chairman's testimony before this committee. since enactment two years ago the sec has proposed most of the

rules required by title seven. we continue to work diligently in coordination with the cftc and other domestic and foreign regulators to implement all the tiles provisions. in june the sec issued a policy statement describing the order in which it expects to require compliance with the commission's final rules undertow seven and requesting public comment. the policy statement is divided into five broad categories of rules and explains how the complaint states would be sequenced by describing the dependency that exists within and among the categories. the sec approach and to avoid the disruption and cost that could result if compliance with all rules required simultaneously or haphazardly. a policy statement also emphasizes that those subject to the new regulatory requirements will be given adequate but not excessive time to come -- to come into compliance. i'm also pleased to report that earlier this month the sec acting jointly with the cftc

adopted final rules of interpretation further defining certain projects subject to title seven including swaps, security based swaps, and security bill swap agreements. in april again jointly with the cftc the sec adopted final rules of interpretations for the defining certain entities subject to total seven like securities dealers and providing guidance regarding the application of the dealer trader distinction in identifying such entities the dodd-frank act statutory de minimus exception and the way that recognizes different types of security they swaps. that includes a phase in designed to promote the overly rollout of the regulation of security they swap dealers. the completion of these to join will making's is a significant milestone in their journey toward a complete implementation of tunnel seventh. beyond these definitional rules the sec also this year has adopted rules that establish procedures for the review of

certain actions undertaken by clearing agencies including submission of affirmation to the sec about the security based slopped the plan to accept. the rules also require clearing agencies that are designated as systemically important under the dodd-frank act to submit advanced notice of changes to the rules, procedures, or operations that could materially affect the nature will level of risk. moving forward, the sec expects to complete the last of the core elements of our proposal phase. rules related to the financial responsibility of security based swap dealers in major security based swap participants. further, we intend to propose in a single holistic will making, rules and interpretive guidance addressing the international implications of title seven. are cross border approach will be informed by discussions with the cftc and fellow regulators in other jurisdictions. i expect the commission's proposal will address the international implications of title seven with respect to each of the major registration

categories covered by title seven relating to market intermediaries and aperture. as well as respect to the transaction related requirements under title seven in connection with quoting, caring, trade execution for security based swaps. this publication is intended in part to give investors market participants to buy foreign regulators, and other interested parties an opportunity to consider as an integrated whole car parts to the registration and registration of foreign entities engaged in cross border transactions involving u.s. persons. the commission therefore anticipate that this release will be published before the underlying rules addressed and it finalized so that the comments received can be taken into account in drafting the final rules. in conclusion as we continue to implement total seven we look forward to continuing to work closely with congress to our fellow regulators both at home and abroad and members of the public. thank you for the opportunity to share our progress and current thinking on the implementation

of title seven. i will be happy to answer any questions. ..

>> i get asked all the time at home by farmers, by grain operators should i use the markets anymore because of the concern about what's happened and their lack of confidence. what are we doing to repair what is really viewed as a broken regulatory system at this point? >> excellent question. we've pulled together market participants in early february with two days of round tables, and out of that, good recommendations came forward at the national futures association, and we finalized them last week around three areas. one was the use of the firm's money that sometimes they put in the customer fund called the excess funds that you remember so well from the events of last fall. now, that can only be removed if

it's more than 25%, removed with signatures of the chief executive air force, chief financial officer, another senior management, and reported directly to the regulators. we closed a significant gap that existed for over 20 years in our rules about foreign futures accounts. there were two methodologies to compute. i'm not entirely sure why in the 1980s one was picked, but we closed that gap as well. those are very important changes, but also, we have in front of commissioners now a series of recommendations to go further than that. one of them that i highlighted in my opening statement that i really believe that the regulators, the chicago america tile exchange, the national futures association should have direct and daily electronic access to see what's in the bank accounts, to see what's in the cues -- custodial accounts, and not relying on the events, but about falsifying bank statements,

forging signatures and so forth. we can't stop every fraud, but to have the regulators have direct access on a daily basis, i think, is a critical reform. we need to go further. >> on that point, is that one of the changes you'll be making? with technology available today, i don't know why we're not requiring realtime oversights of the futures commission merchants at this point. >> it is, and it is -- i think it's a critical reform. we talked to the future industry association about. i'm hoping it will have broad support. we need to put it out to public comment, but, yes. >> okay. that's great. talk a little about, you know, there's obviously a criticism about the regulators failing to do your job in reacting to crisis rather than preventative efforts. can you speak broadly to that? >> well, we're an agency that ultimately has responsibilities

and now the swaps oversight. through statute, we have to work with self-regulatory functions agencies, and that's been appropriate for decades. it's a multidecade approach. i think the fcc has it similarly. they are the front line regulators, and we oversee them as well. i do think that we need to do more. we need to do more and review that relationship and make sure we're doing the right things at the cftc when we examine the examiners so to speak as the second line of defense to ensure their audits are full and don't miss things for instance. >> okay. mr. cook, when we look at the fcc, and i appreciate very much the working together on definitions and on rules and so on, but at this point, the fcc has, frankly, been behind the title seven o'clock in terms of moving forward and finalizing a

third of the rules. you indicated there's a lot coming up in the near future, but i wonder if you know when the fcc's going to put forth a proposed rules on extraterritoriality and why the fcc chose to propose a rule rather than interpretive guidance. >> thank you, chairman. the -- it's difficult to predict with precision exactly when the rule comes out, but it's right in the sweet spot of the focus of the staff right now together with the final proposing rule we have to implement, the rule relating to the financial requirements for security space swap dealers, the capital and margin rules. we hope within the next several months, we'll have the rules in front of the commission and acted upon. we are intending to sequence them with the capital marging rule coming first and border release second. under our approach, we want the cross border release as the

capstone to all the regulatory proposals and look back over all of them and ask the question how will these apply to cross border transactions, and it's important to have all the proposals done and then do the cross border release. that's, in part, in answer to the second question, which is why would we do it as rules? we are, in some cases, amending some of the rules we've already proposed and providing fairly significant guidance about how the rules would apply in a cross border context where we feel that it is beyond the scope of what we can do by interpretation. the question of whether you do something by interpretation of a rule is a judgment that they have to make. we have different statutes and different words we're trying to interpret in some cases, but our approach so far at a staff level, and the commission has not yet addressed the issue, is we have to do that through a rule making that adds to what's in the statute within the scope of our authority, and also that will incorporate full economic

analysis and the cost benefit analysis that normally accompanies a regular rule making. >> when do you anticipate having that done? look going forward, you got a third of the rules done now, are we taking the end of the year? i mean, -- >> before the end of the year. we're hoping to get the capital margin rule done in the next couple months, getting finalized in the next couple months, and the cross border release comes after that, but we are actively working on it now to sequence it after capital margin, but have it done as quickly as possible after that. >> thank you, senator roberts. >> commissioner, there's a statement of consent regarding the president's fiscal year 2013 fiscal budget for the tftc. he indicates the investment in technology should be its highest priority and funds for technology should not be redirected for other authority.

have you redistricted funds meant to be used for technology, and i stress, was it not a technology update that allowed these self-regulatory administration, the national futures association, pardon me, to ultimately catch him? >> from reports, sir, it does appear that they go in every nine to 15 months on their rules to do audits. it's moved from a paper process to an electronic process, and you're correct from the reports we'll learn more facts. they were moving to an electronics platform -- >> if you re-directed funds meant to be used for technology, that's the basic question. >> to that part of the question, i believe, actually, we've gone the other way. we're an agency just about 10% in head count more than we were 20 years ago. we're about 690 people right now. this year, we'll spend

approximately 50 million on technology, which is significantly up from last year. in fact, working with congress, i think there was a laying out that we must spend at least $45 million, and what we've done over the last several months is re-direct more into technology. we need to do both. we need people and machines. >> have you re-directed funds that were designated for technology for other purposes? >> well, our appropriations said that we had to spend at least $45 million this year, and we will be close to $50 million on technology. >> i appreciate that. let me see if i understand this correctly. the cftc needs a larger budget to regulate a swap in singapore because there's a direct and significant connection to u.s. commerce. this requires the cftc enforcement action on a foreign bank that you are calling a u.s. person based on substituted compliance in interpretive

guidance in a document that has no force of law. where is all of this found in dodd-frank? >> well, in dodd-frank in section 2 # 72d. they laid out the authority of the agency. for the cftc, there's not a particular provision. we had many, many commenters say can you help interpret the words, what's it mean to have a direct and significant effect on commerce and activity in the united states? i'm roughly paraphrasing, but that's what 772d is. that's what we are trying to interpret. >> what if this u.s. person disagrees it is a u.s. person based on this interpretive guidance that you met as no course of law? what happens then? >> well, we're trying to -- there's the statute that's clear black letter words helping give

guidance and put it out to notice and comment. we'll take public comment and i think benefit from consultation with the public before we finalize such a guidance. >> well, if we have letters from five international regulatory agencies saying thanks, but no thanks, we are not a u.s. person, does this still make the u.s. vulnerable to retaliatory regulation or regulatory arbitrage? >> if somebody's not a u.s. person under the guidance of the law, it's not our jurisdiction, and we wouldn't have it. what we have is jpmorgan chase lost dollar 5 billion in london -- $5 billion in london, and that's a u.s. issue. aig, if i can say, was very much a u.s. issue although they ran the derivatives portfolio out of london, and $180 billion of u.s. taxpayer money went in. >> i understand the problem, and it's a serious problem, but what happens when the foreign

regulations are not similar to u.s. regulations? which regulations supersedes the other and who decides if there's a disagreement? >> well, what we said if they are comparable and comprehensive, words used for actually more than a decade probably, than we will defer under something called substituting compliance, but if u.s. taxpayers are left exposed because a u.s. bank is operating in london, and we're exposed, dodd-frank would be applicable in that situation. >> i understand. about a year ago, i asked you if the sumter county grain elevator had to change the sign to reach a swap dealer. a year later we have five different definitions for a hedge. why can't we just have one definition? we have five. >> the grain elevator operator will not have to be a swap dealer under the completed rules. >> i appreciate that. >> that's important. why we have different definitions 1 in the

circumstance of end users and their choice not to clear, i think congress is direct with us. make it easy. make it sure the users don't have to clear, and that's what we did last week when we finalized that. in another circumstance, for instance, language about hedging, and i think they didn't want to >> >> what are the recommendations regarding mf global fiasco? the second major failure. do you have those recommendations? >> recommendations are in front of commissioners now. some of the recommendations were embodied in the good work with the nsa and cme and the futures industry which was finalized last week. >> mr. cook, if the cftc proposed interpretive guidance, your testimony says they intend

to propose an administrative rule and a cost benefit. it is by understanding they will merge them into a single proposal later; is this correct? >> it is correct that we intend to do a series of rules. >> you're a lawyer. how's this work? how long will it take? >> well, we're not going to merge the rules into a single rule. when we propose our rule, take into account what they have done, and obviously, one of the things we have to do with a cost benefit analysis is consider whether it's different thab another regulator where there's markets overlapping, what's the cost and benefits for doing that. >> are you saying that the cftc is one way and ftc is another, and when the public can comment, it's ultimately cftc's way? >> no, sir. i didn't mean to suggest that. we have not come out with the proposal yet, and so it's informed by what the cftc has done, and it may, many many

respects, look like it or different in other respects, all in which we request comment on. >> you believe they are doing this correctly? >> i believe we're doing our best to implement faithfully the statute and consistent with our documents which require us to follow certain administrative procedures. >> do you believe the cftc is doing this correctly? >> please be brief. >> i do, sir. can i clarify something? it was on this transfer of technology. technology we spent over $37 million last year, and this year we're close to $50 million. otherwise discussions with congress as to how much we should spend this year, the appropriations bill ended up at $55 million and said it could be brought down to $45 million by something technically called transfer authority. we did that, but we're spending approximately $50 million. >> okay. thank you. yes, thank you. senator harkin.

>> thank you, madam chair. you covered about the financial that went under in iowa with over a $200 million short fall in customer accounts. first of all, i find it hard to believe, hard to believe, that one person with hundreds of employees dealing with all of these accounts would be the sole person responsible for this. i find that hard to believe, and i hope the investigations will continue on to find out if there were others involved. secondly, the controlling agency for that was the national futures association, not you. not the cftc. the national futures association. i'm astounded that this could go on for nearly two decades, and yet nobody checked to see where the bank statements were going, who they were going to, if they were real or not. i'm just -- i find that mind boggling that no one could

discern this which raises, 2k3we7b, the question in my mind the question of self-regulation. you know, self-regulation works if you have really tight controls from the regulatory body over them, which is you, the cftc. i guess picking up on this debacle, if the cftc has direct access to bank records on customer funds, if you do that, do you have the resources to actually, and the personnel to do an adequate job of oversight then? >> we don't, frankly. we don't. we're only about 10% greater than we were 20 years ago, and the futures market alone are five folds bigger, and then we have the swaps market that's vast. eight fold more than that five fold, but i think direct electronic access for the self-regulatory function and for

us is critical, but it's still the first line of defense is the first regulatory organization. >> but i side i'm losing faith in self-regulation unless there is adequate tight oversight by the agencies that we fund through the federal government and through the regulatory process through what you can do to make sure that they are doing their job. we've seen self-regulation since 1999. i had a federal reserve chairman here telling me that, oh, yeah, they'll self-regulate themselves. we fount that didn't work either. you need the personnel and resources to oversee the national futures associations. >> we do. we absolutely do need those resources the president put forward, and we need those resources. >> let me ask you this. the house appropriations

committee cut the funding by $25 million. how's that going to help you and reassure the public the cftc has oversight and adequate oversight over other entities? >> i think there's more mayhem in the markets. >> well, that's what's happening, cutting this down saying, well, they'll take care of themselves, but we seif what happened with that in the past. >> i wanted to get in just briefly on the swaps issue that my friend from kansas raised in terms of overseaings. dodd-frank says, and i quote, "u.s. regulators can oversee swap opportunities with a direct connection of activity that affects commerce in the united states." you said that there. i'm concerned without the proper regulatory framework that large

u.s. swap dealers chiewf them to a subsidiaries overseas, oversight retaining financial risk in the parent u.s. base company, in other words, u.s. taxpayers still bear the risk. i ask you, chairman, did the trades conducted by jpmorgan's chief executive officer in london, $7 billion you mentioned, was there a direct insignificant effect on commerce in the united states? >> absolutely, yes. >> then going forward, how will the commission ensure u.s. taxpayers a protected from swaps conducted overseas for which financial risk is held in the united states? >> what we've laid out in this legal interpretation of that statute that congress wrote is that it's the branch of a u.s. person overseas covered by dodd-frank. if it's guaranteed by the mothership back here so risks can come back here, that's under dodd-frank, but we can look to substitute compliance and so

forth, but the risks come crashes back here. i used to work at a large financial institutions setting up hundreds of legal entities. today, i understand there's thousands of legal entities around the globe, but in a crisis, the risk comes crashing back here. >> mr. ginsley, i'm worried about the area of markets and swaps and futures. goldman sachs sold a derivative to a client although e-mails labeled is one blank deal -- bad deal. jpmorgan's chief investment office did the $7 billion lost in london. large financial institutions across the globe are accused for fixing the london bank, a key benchmark interest rate and billions of transactions. two futures brokers recently have been found to have significant short falls in segregated customer funds.

when i hear people say we need to get rid of the reforms of dodd-frank, most of which are not in effect yet, it makes me wonder whether or not people are paying attention to the same things that we read about in the paper. again, it's high time that we get the regulations outside, finalized so both of you -- when will your commissionings get the work done -- commissions get the work done, mr. cook? >> there's a whole series of regulatory requirements under dodd-frank to address a range of those issues you raised, sir, including things beyond title vii and where's it a voker rule or asset backed officers, and we're trying to tie them in parallel and move them as quickly as possible. it's going to be -- still, we got a lot of work ahead of us, but we certainly understand the importance of getting it done quickly as possible and coordinate effectively. >> you don't have a time frame. chairman? >> halfway done.

you gave us 55 things to do, we have under 20 to go. they'll complete most, if not all, by december 31st of this year, but there may be two or three sliding into the first quarter of next year. >> good luck getting it done as they will cut $25 million from your budget, but i hope we will not do that. >> thank you. senator grassley. >> thank you. very important hearing. glad you're having it. i follow along on what senator harkin said. i have some of the same questions, more specific questions, but before the questions, let me say a few things. it's important that we flush out the issues with the imputation of dodd-frank. fringe, i continue to be conditioninged about what sort of reach these regulations will have on agricultural cooperatives, especially given that agriculture cooperatives were, by no means responsible for the events that led to financial crisis in the first

place. our commodity markets are vital for our farmers, businesses, our economy, and we must have confidence in our system. farmers have utilized the commodity trading system for decades to help manage risk, but the confidence of farmer, investors, and other market participants has shaken first mf global, and now we have more, and while we're here today to discuss the development of regulations, we have to also make sure that the regulations we already have in place are being enforced. i know some people will always try to get around regulations with both mf global situations causing me concern that perhaps not everything is being done to ensure proper oversight of brokerage firms. lead in for the first question has been widely reported that the owner of pfg best was able to defraud regulators by forging bank statements. my first question is two part,

but i'll give you both parts of it. isn't it a corner stone of independent auditing for auditors to check with banking institutions as to what account balances are? why were the auditors auditorring pfg best not checking with pfg's best bank during the 20 years this fraud was apparently occurring? >> i appear here as the head of the commodities future trading commission, not as an auditor, but i understand those are the cornerstones of confirmation. it appears here, and what we've alleged is that there was deliberately dishonest and forged bank statements and also fake -- what was it called -- bank addresses on these statements. that's what we've alleged, and, in fact, has been admitted in a note that was left when

mr. wassendorf attempted to take his own life. we have to go back and look at this. i think this failed the investors, but both the up dependent cpa and the -- independent cpa and the nfa as we understand it were well aware of the cornerstones you mentioned in a paper world. i think we have to go to direct electronic means that the regulator and the cpa's can get these confirmations and acknowledgement letters. >> the second question. we've had customer money go missing in mf global and what is the cftc doing to ensure segregated customer money is properly safeguarded? how is the cftc going to respond to jittery farmers and up vesters worried about whether their money is properly accounted for at whatever firm it's held?

>> we need to do more. we've reorganized and stood up a division, hired new leadership, not just at the top of the intermediary oversight, but also the examination function, a man who is a long time auditor himself, and we helped with the nfa and others put in place four or five new common sense rules, particularly, though i'm not, as you know, i'm not participating directly in the mf global situation, and we've had some good public comments about that between you and me. we work through the round tables. we got public input, our five commissioners came together, and nfa put new rules in place, and our commissioners now have in front of them a whole set of new rules as well that we'll put out to public comment hopefully in the near term. i also think we need to do a complete review getting people to look at how we examers, how we at the cftc oversee the

functions as was referenced. we have to be reflective. and when we are reflective, we could find things over the years we wish we had done better, but we shouldn't shy away from that. we have to see what we can do better as well. mr. wassendorf -- >> my last question. do you have any opinions on how the national futures associations and/or the cftc missed the fraud over the last 20 years 1234 >> again, i think we're going to learn moring the -- learn more facts, seeing what they were looking at. it's all part of the organization, and reviewing ourselves too and having people look at how we examine, as i said, the examiners. i look forward to sharing that as we learn more of the facts because the investors here were let down.

>> i'll yield back the time, madam chairman. >> thank you very much, senator grassley. senator klobuchar. >> thank you very much. thank you jr. holding the hearing. in the last two years since dodd-frank was put into law, there's reminders of the financial crisis of 2008 and the necessary reason to put forth reform of our regulatory system. we've seen the collapse of mf global which left those, the system that was supposed to protect holding the bag, many in my state, still working to collect the money, and they have a devastating impact on the livelihood and savings of so many people. there's a hearing on that august 1st so we can explore more on what's happening with that at that time. more recently, as we've discussed the jpmorgan trading loss, barclays admission to the rate, and now the financial group that filed for bankruptcy

after its founder play at that particular timely defrauded its customers out of hundreds of millions of dollars. it seems there's more work to be done, and that's what i wanted to focus on. i know you discussed with my colleagues, chairman gensler, the emergency meeting set for next week to explore how to better protect customer money many light of what happened at pfg, and it just seems so unbelievable nine p months after mf global, especially when you look at the time line and as my colleagues from iowa pointed out, the simplicity of how the fraud was prepare traited -- perpetrated, what assurance do you have to address this going forward? you were pushing them to do electronic filings. do you have that power now and it's just not rolled out? can you require all firms to do electronic filings, and what other ideas do you have? >> we do think we have the authority, but we have to do it through notice and comment and

administrative procedure. put a rule out, take comment, we think we have the authority, and we look forward to doing that. beyond that, i also believe that up vesters should -- investors should get the same transparency into the accounts in the futures wort they come to expect in the securities world and mutual fund area that if i have a futures account somewhere, if i choose to, i can know how it's invested and so forth. we raised that with industry, and if we have the support for public comment, we'll do that. thirdly, i think there needs to be a strengthening of the internal controls at future commission merchants, and there's a way with cost and benefits, of course, but higher internal controls at the futures commission merchants, particularly the separation of duties, separations of duties of the people that can move money from those who can count the money, classic separation of duties issue as well.

>> just to give you a sense of one minnesotaian we heard from, and he copied me on the letter that he sent, and this guy had money with mf global, lost money on that, went over to paragrin to try to protect himself. he said the problem with your statement is the implication, statement by the nfa, the problem with the statement is the implication the failure to detect a $200 million fraud earlier shouldn't count against you, it just matters that you catch it. your job is to prevent fraud by putting in place the tools and people to ensure funds are as reported, that segregated balances are protected, and that people making investment decisions can rely on the audits that you perform. why so many recent cases where the system failed to detect risk

and, again, can you commit here we're going to be able to fix this? >> senator, i find myself agreeing with your constituent that wrote the letter. we've got to do better. we all do at the nfa and self-regulatory functions, but also how we examine the examiners as i say. there's certainly funding issue z as well, but i think it's really about how the audits and examination function occurs on the street. >> uh-huh. i know i heard you talking to some of the other senators about reaching out to the banks where future firms held cash to seek to obtain independent verification that the statements made by the firms are accurate which i think would have helped to catch the problem earlier. obviously, you were not, chairman, when this started, this particular fraud, but i wonder why the decision was not made back in january to rely on information maintained by the

fcms instead of confirming balances directly with depositories holding money. >> we'll learn more facts, but as we understand there's photo shop or purposely forged documents and even a fake po box for the bank. what we understand is the nfa had an audit in may of 2011, february of 2010, and there's one for december 3 # 1 -- december 31, 2011, all of them, in essence were defrauded and lied to, and as i say, we're going to take a close look at each and go back as far as back as the documents exist and also look at what the cftc did and what we need to change. >> and you think the nfa is up to the task of serving as a first mine regulator here? there's letters like the one i

just received that make people think they are not ready for this. >> you raise an excellent question, and, in fact, i'll say this this committee, we're broadening with the swaps reform of dodd-frank. the nfa1 a front line regulator ranging from jpmorgans of the world across any swap dealers. no agriculture cooperatives, by the way, are swap dealers. we did address thatment i want to make sure we understand. we're adding to this self-regulatory function. it's in our statute. it's the way congress laid it out. we rely on them, and we're to oversee them. you raise an excellent question. i think that all of us have to do better, and we're going to review the nfa's self-regulatory responsibilities. >> okay. thanks. one last question. you mentioned the end user issue, and i thank you for your work on that issue with many end

users. the banking regulators and international regulators and policymakers to have requirements for uncleared swaps. as i know you are aware, the rule proposed by the prudential regulators caused a great deal of concern among end years, requiring swap dealers and participants to collect initial and variation margin from non-financial end users under certain circumstances. can you talk about efforts to align the requirements here and abroad and where things stand with the prudential regulators? >> i ask you to do that quickly, thanks. >> because it was such an easy question. >> yeah. we made great progress and put out internationally an approach to margin which actually, i believe, is consistent with what the cftc had done, and this document only went out a week and a half ago out for two months for further comment.

i think that the prudential regulators understand what we're -- >> okay, chairman, i'll ask a follow-up question in writing to the chairman about this matter. >> absolutely, thank you very much. senator thune. >> thank you, madam chair, and thank you the distinguished ranking member for the hearing. it is important. it's timely. i want to follow-up a little bit and sorry i walked in as the senator from minnesota was asking questions. i'm just curious to know from the stand point of the average investor out there when the melt down occurred in 2008, enacted these reforms, dodd frank was supposed to make sure that up vesters -- investors were protected, that these types of these were prevented again, and if you're an end user, what kind of -- this is a global question from

30,000 feet. how would you reassure that person out there after you had mf global and now what's happening with jpmorgan chase? nose are like sort of major big significant events that i think cause people to question, doubt, and really impact the confidence that the american people have that there are safeguards in place to protect them. i mean, how do you respond to them in light of the fact that dodd-frank was to address the issue of risk and get us away from the concerns and the doubts and the questions that the lack of confidence of the american people have that it's -- its financial system is working and working with integrity? >> senator, i add the recent matter with barclays -- >> right, exactly. >> not honest reporting or with integrity in essence.

>> right. >> i would say this is midstream. this is very much a work in progress. dodd-frank is historic. i think it's really critical we get it in place. we have not been trying to rush it against the clock, but to get it planed with cost benefit analysis and so forth, but it is time to get it done. i think that we still have much work to do at the cftc both in the futures and in the swaps area. there's going to be greater transparency starting this fall that the public will see the transactions and the in the swaps markets. we have greater customer protections, but just as the circumstance shows when someone attempted to rob the bank basically. it was like a bank robber false falsifying statements and taking $200 million approximately. we have to do everything we can to ensure it's harder to do and defraud. human nature, there's always

somebody out there looking to defraud. we have to make it harder and have enough cops on the beat to go after them. >> do you think that you are confident the commission has the safeguards in place? >> i think we're getting there. i think that in terms of the swaps margs reform, we're not fully there. we have close to 20 years to continue to implement and work with industry it's smoothly implemented and not as senator roberts is concerned. not like a got-you moment on september 1st, but smoothly put in place. i think there's a lot more to do here, and in a customer protection area just as the situation highlights, i think it's critical that regulate ors have direct access and can see these accounts. >> let me ask a question because a lot of this comes back to use of segregated customer accounts,

and that's where the volcker rule would apply, but i'd like to ask, i guess, how you distinguish between proprietary hemming and the rule and drawing a distinction between trading and what constitutes a proper hedge, and if so, how do you make the distinction? >> senator, it's one of the most challenging rules congress gave the federal regulators. prohibit proprietary trading so the taxpayers are not behind just betting on the markets, but permit, as you say, hedging, and market making as well, which are critical. it's critical banks hedge themselves. we are making good progress, but it's challenging because they overlap. they do overlap. >> what about portfolio hedging? is that something to be allowed?

>> well, congress spoke to it and said that it hemmings for specific risk or aggregate positions. i think that should be allowed. congress answered that question. this word "portfolio hedging" can mean anything to anybody. if it's tied to specific positions, even if there's 100 of them tied to specific positions, i think congress spoke to that, and it should be allowed, and it's not just something with a label, but it's really betting on markets. >> let me ask to the whole question of how the fcc and the cftc interact with regard to capital and margin requirements. i mean, the commission initially said it would recognize the fcc's capital margin requirements and cftc indicated it will not. where in the dodd-frank act is this division made?

>> well, for futures commission merchants they are also often registered as broker dealer, and when they are a joint broker dealer with a futures commissions, we have joint broker rules in capital in place for numerous years, and we continue to share our work with them for the non-joint registrants, but i think that we would set the mar join for somebody who's not a broker dealer, but is just under our jurisdiction, and obviously, that would be similar, but maybe mr. cook has something? >> i think that's right. i think one of the proposals was to recognize for certain capital purposes the use of models or evaluation at risk regime, and i think there there was, in the cftc proposal and the chairman can correct me, there was some recognition if the fcc approved a model that the cftc would accept that, and i think that's part an an overall regime trying

to recognize where other regulators have already addressed the particular framework for capital and risk management. it's something we consider on our end as well. >> particularly because we're thin staffed, we recognize models they approved. >> i see my time expired. thanks. thanks, madam chair. >> thank you very much. senator lugar. >> thank you, madam chairman. i remember vividly a hearing that senator harkin conducted four years ago. it was at the time of mortgage crisis, and this over simplified the explanation we were given, but the gentleman from the federal government said that understand it this way that young bankers out in the neighborhoods are attempting to get as many mortgages as possible, even give bonuses regardless of whether the borrower can pay it back because

the bank then packages all these mortgages, sends it on to a larger bank, has no risk left. the larger bank packages more, and bigger packages arrive at locations where financial institutions realizing they have quite a bag full now, and the risks are such trying to devise formulas from one to ten where some are very risky, and others are less, but they then produce securities which have a lot of risk attached or less as the case may be, and try try to market those, often successfully, and those who buy riskier ones, they get insurance policy, those mentioned with aig specifically in those days. aig has a whole raft of the situations, and officer insurance policy, but what they offer are bets or opinions.

what's this all about? well, for example, somebody at aig might decide that a security in pakistan was the one they wanted to have a tradeoff swap or what have you with, and so they go into this sort of situation. now, i mention all of this because it was at least a reasonable way to explain to my constituents why disaster occurred along the way and why aig finally had to be rescued itself from all of these e mas nations, and we had descriptions of very abled guys back in the back room trying to make money for their banks or for their institutions with all sorts of extraordinary trades, and people said this is the american enterprise system. this is freedom of choice to use your money however you want to. the dilemma was the american public was left with recession

and all the tragedies that have come from all of this. this led to dodd-frank and led to other things prior to that point. now, even, you know, as you've testified over the years, we always keep raising the question and you raise it, how are all of these regulations ever going to be written with the staff that you have or with -- how in the world can cftc or other regulatory, maybe fcc too, but we've been dealing with -- and the answer never really comes through because there seems to be a tension between some who are risk takers in the system and who we admire, and people who do not really want regulation, and the tension's timely come down to the fact there's no rule makers over at cftc, there's probably less regulation. we pass dodd-frank, and two years later, we ask you where are all the rules?

you say, well, you have to go through this public notice and all the rest of it. even then, i'm curious how you run the agency. why don't you have people sitting around the table saying today we're going to make a decision, have a vote, move this thing along, but leaving that aside, this seems to me, we keep talking past the issuement on the one hand, we know risks occur, the tragedies we discussed to date, and on the other hand, we've seen rule making or have transparency with swaps for example or transparency for a lot of things or fear this is an invasion of privacy or entailment of american free enterprise. i lay this out because i'm wondering how with 30 rules done or 25 to go or so forth, how is there any assurance to the american public that in the mean while, more tragedies are not going to occur. that jeopardize bank and back to

the argument of too big to fail. in other words, if an agency or entity makes mistakes. do they fail and take everybody with them or is there a public assurance to be rescued? when you advocate before a congressional committee for more staff, why are you not successful? what do you see as barriers right now? why don't you make the rules? why don't you get along with it much more rapidly? >> these are excellent questions. i have three daughters, and when they ask for the car keys, i'm glad there's common sense rules to the road, traffic lights, and cops on the road to protect my daughters from drunk driving, and that's what the american peoplement in the financial market as well. common sense rules, but lets you get to where you need to go and innovate and risk in the economy is there, and it's a great backbone of our american success to innovate. head woins are significant.

congress asked us to write 66 rules. we got 33 comment rules, 3700 meetings on it, 18 full round tables, and in the written testimony, there's another one in customer protection. we have two lawsuits already. it's our american way. we're going to defend them. if they are wrong and a court says we have them wrong, we'll go back and do them again, but i think that the american public needs us to finish the rules. i believe it's a good investment to have more cops on the beat like my daughters would like, you know, so we protect the roads from the drunk drivers. >> well, can we protect the rule and have a few seconds left? one was talking about the fact that as in my local bank, i don't want want bankers speculating with my money, even

if they make more money on it. we try to separate the functions. is this going to work in real life, or are people beginning to continue to protest that deposit money or whatever you want to call it is really up for grabs? can you get that part of it at least safe? >> i think it's a real challenge, senator. i think there's still going to be risk in backs. nobody's going to repeal there's risk in banks. i think the banks need to have a freedom to fail and when they fail, the taxpayers don't bail them out. >> uh-huh. thank you. >> thank you very much, senator lugar. senator boasman. >> thank you. i agree we need to provide you with the accurate resources you need to carry forth with the agency and provide oversight. i guess the question is is perhaps a lot of people are concerned that you have mission creep and have creeped over into a lot of areas with due --

duplicative authority, not all the time with the authorities dodd-frank gave you. you use the term in the spirit of dodd-frank, whatever, but what i think an example of that might be that the cftc has, in their definition of swaps, registration and things, sense you have an additional 18,000 to 28,000 registrations to be audited byes cftc, despite having many regulated by other agencies, with the problems that we've had with situations where people have lost a vast amount of money and the regulations has not been there, wouldn't you be better concentrating on the core role of the agency right now in

getting that under control? >> senator, we're very much focused on the core role and mission to oversee the derivatives markets. of course, congress added the vast market swaps which is eight times the size. cftc opens investigation in 2008, april, to look at a key bench mark where market regulators, and there were bank regulators, of course, around the globe, but we, as a market regulator, knew it was critical that over 70% markets priced off of your dollars, by the way, off the rate, and it did take us for years. it's a very complex case, but we're very much focused on the core mission. that's very core to the futures market place even before dodd-frank, and now, of course, we're focused on what congress asked us to do to protect the public for the unregulated swaps

market place that existed in 2008. >> let me ask both of you. are you doing a better job of working to the in trying to come up with regulations in harmony with each other and not regulations that makes it difficult as those that follow the regulations for them to really feel like perhaps one agency is going one way and another agency going another, mr. cook? >> i think we are looking hard to do that, but in the spirit of the need for regulators to self-critical, the jury is still out. we have not timized rules yet, and so if you look over the rules, there's vast swaths of similarities or io dental as -- identical as pecks, and there's important parts, and if it's different, we have to justify it based on rationale like a different market. there are differences between the markets we regulate, there

are differences in the statutes, and i think we need to take a very careful look at that as we move forward. >> you're roll out is difference -- your roll out is difference than the other agencies rolled out. can you tell us why you chose to roll it out in the way you did opposed to piecemealing it? >> we made a choice early on we wanted to delay the effectiveness of the substantive requirements so that none of our substantive rules were triggered by the recent adoption of the product definitions because we were not sure when that was going to happen or where we'd be in the process, and so at that time, we decided that we were going to -- each time we adopt a rule, consider when it should go live, and then wanting to look back at the whole mosaic of the rules and see how they fit together and give people an opportunity to see how we think of sequencing them and then to

consider how to comment on that, and that's the policy statement i mentioned in my opening remarks that we put out as a way to kind of help inform that debate. >> very good. chairman, you've taken a little different view of that in your role out. will you comment on that? again, comment on the -- how things are going in working with the fcc in trying to get these things accomplished. one of the problems we got, and you guys know this better than anybody, but when there is uncertainty, and there's uncertainty in this area, there's uncertainty throughout our entire economy. it's such a drag on the economy, and so if you would comment, that would be great. >> i think it's working very well with the fcc, with chairman shapiro and the departments. it's the staffs really.

there's a low bar and rules that the congress asked the agencies to do back in 2000 that were not done when each of us got there, eight, nine, ten years later, and yet, we just completed two rules joint with the fcc. i know there that was a a low bt we're doing better. in terms of moving forward, congress gave us oversight to what is approximately 95% of the swaps market. the interest rates swaps market, the big energy swaps and agricultural swaps are small e and then also the inexsignatures -- indexies. there's a lot ever things to do. in fairness of the fcc, they have a full plate on other things. we are swimming in a deep lane called futures and swaps, and that's partly why we have another approach. we got so much completed. they got many things completed

in other lanes, not derivatives lanes. >> your approach being? >> well, our approach is that we finished our proposal phase of about 55 proposals by about a year ago; then we opened them to public comment again, and then we turn the corner to finalize rules a year ago. we finalized 35 of them. many of them will now be implemented, and living also within the president's commitment to the g20 national leaders that said we'd complete this by december 3 1st, 2012, and living that congress said to get it done within one year of dodd-frank, and now it's two years. it's a deep lane, and the fcc was in many other lanes. that's why we had a luxury to get our job done and on this, or further get it done before them.

>> thank you. thank you, madam chair. >> thank you very much. chairman gensler, i'd like to talk more about the appreciation of the recent enforcement action against barclays, and there's no question this rate manipulation scandal is significant implications of hundreds of trillions of dollars in transaction, and it really casts another dark cloud over the financial industry. are you working on similar cases related? >> i would not want to compromise other enforcement matters, but i would say that numerous other financial institutions have publicly reported that the cftc is asking them questions. >> could you speak to, again, the length of time that's taken because i think it's hard from a public stand point for people to understand who began this in 2008 what took so long. >> they are very complex cases

that started in april of 2008 and started reviewing the markets and reaching out. i arrived in the spring of 2009 so i remember this one pretty well and got involved. a wonderful staff. evidence starts to populate by late 2009 and early 2010, and we get the justice department and the financial services authority, i think, opened formally their case in england in the spring of 2010. that's already almost two years. what happens in a case like this is there's millions of documents, information requests have to be handled jurisdictionally overseas, and so even sometimes to schedule what's called interviews over there, sometimes they are called depositions here, take a considerable amount of time. this case was pervasive involving trading on three continents, two key rates. it was involved at least four

other banks that we name as bank a, b, c, and d in that order. aiding and abetting, what other people call collusion, but under our statute, aiding and abetting. >> right. >> this management directive where management was saying stay below, let's get in the pack over 14 or 15 month period so it's a very important case, and we focus resources, and i would also say it started with -- well, we have far fewer people on our barclays team than are sitting at this table right now so, you know, there's 400 different investigations going on at a particular time at the cftc. ..

>> and makes adjustments if need be from transactions and secured markets.

firewalls and other provisions. it was critical. they were pervasive. it was wrong. >> talk about harmonization and global coordination it is a balance. we blunt to keep this industry in the united states but we are in a global marketplace with broad implications. there are important things to look at. you have proposed guidance but first, what coordination are you doing with the ftc was a global marketplace and harmonization? >> we shared with the sec and other regulators o one

year-ago in consultation and then the treasury department with a group of international. we've got allot of feedback on our guidance. >> could you respond to the coordination issue? finreg yes. we have consulted extensively from the staff and i fully anticipate that we partner with the international dialogue. other perking groups and will collateral conversations and the key jurisdictions of agencies around the world to talk

about the timing seeking to harmonize the end result. >> as we look at the bridges abroad from the transactions , could you speak to the concerns of competitive as a vantage? how to rebalance that and protect american consumers and investors? >> if we would adopt with the industry has asked for. the jobs move and we have the of risk. we don't cover their branches of bank of america it and jpmorgan where the guaranteed affiliate's of goldman sachs are guaranteed, if that is not covered with the dodd/frank the risk is still the taxpayers but the jobs will move to london because they

will go to where they have less regulation. i used to do this. it is natural. it is planning. they have thousands of legal entities to pick from. we are looking at how to protect the public and comply with dodd/frank. >> thank you very much. what is obvious is the need for urge transparency and cooperation. win or have the commissioners received your recommendations on mf global? >> i assume it is about

customer projection? starting with the roundtable staff. >> iac your specific recommendation and the plans? veba wrapped up the investigation. but you said you were a nonparticipants but you wanted to be in control. you have a plan to go forward? have you share that? >> i am not the dissipating directly. but customer protection initiatives have been shared

>> you did not give commissioners of copies 6:00 last night? >> that is a draft. >> they received a draft of the recommendations? >> we move from a list of recommendations cement we are dancing around the cooperation letting us know what is going on. why did cftc looked at to

cross guidance with a follow-up so you could avoid cost-benefit analysis? you're indicating you try to push this rumsey us -- cftc so of the sec blow followed with the derivatives? >> there is a specific provision in dodd/frank 722 why we have that i don't know. -- . >> noboby knows your plan plan -- intergalactic plan

other than new that could take our planet over the cliff. we know the sec but what is your plan? jaime swap execution facilities are available up and running today? >> swap execution facilities somewhere close around 20 but we don't know. >> blinder standing there is only one operating. >> i am sorry. there are not in the head to. maybe swap data repositories there are others of various stages of applications. >> mr. cook you have said

there will be a cross-border proposal? is that true? >> yes, sir. >> will we end up with two distinct regulations between it second cftc? >> we will have to take into account what the cftc has done and if there are differences to justify those in the proposal. we found proposing alternatives is good to get the comment back but we have not yet put out the proposal. >> to trains going in a different direction. why isn't there a 60 day clock that the cftc? >> i believe it is triggered to buy the products which it

is the application. >> one it is interpreted guidance the other is rule-making with the cost benefit study. it has not been done. you have two different frameworks. says the sec provide a trigger before the rules go into effect? >> we have not finalized registration. >> i yield back. >> senator? at this point* we think you. we've will continue to work with you.

formally and informally as we are in constant communication there is work to be done. thank you very much. [inaudible conversations] >> good morning. we thank you for your patience and appreciate you being here. we move like you to speak up at five minutes but was

wellcome anything in writing. the ceo of the international swaps and derivatives association mr. pickel has been a highly visible figure with the regulatory discussions with over the counter derivatives. and completed undergraduate work at williams college. larry, send it is a managing director for the trusting ferrying company and he regularly interacts with government and agencies and issues impacting the company. his law degree from

uc-berkeley. our next panelist is mr. kelleher who has it looks like we are out of order but over three decades of experience and nonprofit and charitable sector and contributing four years also receiving his degree from harvard law school and undergraduate from brandeis. mr. erickson is here on behalf of the commodity markets council and prior to his current position previously appointed us cftc and he received his degree

international affairs from august and at and also south dakota school of law. we will go down the panel from left to right to mr. pickel your first. >> chairwoman and ranking member say q4 the opportunity to taste of -- justify. representing the full range of for dispense from the market's the association supports regulatory reform. there has been progress building a safer market and robust financial system. otc purchase offense continue to work toward the

goals of reducing counterparty credit risk and increasing transparency. over 50 resent of the interest rate swaps market is cleared. undeclared volume has declined 40% since 2007 through 2011. trade repositories collect and maintain the database of transactions. those databases are available at any time. they can play an important role at transparency to provide exposure to regulators and regulators made progress to implement the new framework. the scale and scope is

considerable and much has been achieved as much remains to be done. also understanding the need for regulatory frameworks. this is essential for a level playing field to avoid regulatory gerber tries. markets require corporation. however the process for implementation has been problematic. it has taken longer than expected. many rules and regulations need to be finalized. others need to be assessed. the dodd/frank rules need to be calibrated against other jurisdictions. this causes uncertainty in the financial market to

impose direct and indirect cost and regardless it is high the likely market utility is hundred kidder's will be unable to fully implement the law and the timeframe. it is fair to step back with simple to -- implementation. for those to leave to the most progress. the finalization should be prioritized such as clearing and reporting. that should be analyzed. after synchronous -- sequencing regulators should work with international counterparts to ensure timing of new regulations.

principles of restraint are vital encouraging participation of u.s. markets provides greater choice and those for the non-u.s markets enable them to compete. care must be taken for a level playing field for that cost-benefit analysis firm market liquidity and the economy, it is not good policy. it would enable us to do the important work of reducing risk of the otc derivatives markets. thank you for the opportunity to appear. i look forward to your questions.

>> mr. erickson and? >> thank you for the invitation to appear today on the implementation of dodd/frank. i and mr. erickson and i am testifying on behalf of the commodity market council that brings together commodity exchanges and the activities of the cmc members are the commercial end users including energy and agriculture. we support open competitive transparent regulated markets. of the crisis had nothing to do with physical commodities we support dodd/frank and for those that ask market integrity of holding to the market with of risk-management.

cmc has focused on the aspects of the rules that risk efficiency of the market. and some cases they may affect liquidity our present new challenges for global benchmarks. the new rules drive businesses of how or when to rick -- have a price risk. as a dodd/frank implementation winds down. i asked my eight information be entered into the record. congress created statutory recommendation in dodd/frank. taken that approach of hedging that has five different definitions. clarity a is replaced with case-by-case considerations.

antar affiliate's swaps have been used effectively to manage corporate risk while the commission recognizes the need to distinguish winners and they have margin , clearing and realtime reporting that would impose cost on to the consumers. we urge you to reconsider. with record-keeping it is proposed unprecedented record keeping records of to require all members to capture and maintain extensive records of all communications related to cash market transactions. dodd/frank was systematic of unregulated over-the-counter going the cash market is one step too far.

requiring market participants to report daily on their positions compared to hedges in the market. we currently provide snapshot data but what the commission envisions is impractical because there are transactions that lack technology. it holds commercial firms to number rather than issuing compliance. the final role is between commonly owned entities to do the a proposed exemption. cmc submitted a petition and to request changes. we appreciate the cftc response to it include control over trading as a factor.

control should be determining factor, not the ownership interest because the purpose of aggregation is to ensure the limits are not circumvented by multiple entities. if there is not common control should not occur. possibly the most important to role regulators have had is a joint role that defines who would be regulated. despite assurances of the dealers they are to require the registration of 125 firms include dain diversified businesses and is subject to the futures market for decades. the implementation is

sequencing of the rules. those who buy and sell never envisioned they would have registration as a dealer. registration was the most important role to assess the brisker opportunity. even with the final rule-making last week the commodity market has no clarity. there has been further comment on trade options in the community doesn't know capital and margin requirements or how to coordinate swap transactions to futures. unknowing the mechanics are less important than knowing the definition. cmc members are struggling. of agriculture and energy firms can only assess what may trigger registration in the requirement to meet larger requirements.

we interest and the challenge the commission had to implement dodd/frank but those with the users routinely fail to consider the impacts of the market's. the objective should not be to discourage hedging but the markets that respect those functions. >> mr. thompson? >> thank you chairman, i ring came members and members. and general counsel of the depository trust and clearing corporation a participant owned cooperative that serves as a critical utility u.s. global financial markets. thank you for the opportunity to testify with swap data and the new

regulatory regime. i will focus on voluntary trade reporting undertaken market participants and highlight new dodd/frank rules. consistent with a mandate was to have access to data with the swap transactions as a result and the availability and accessibility has helped to wring greater transparency to the opec market. they require the analytical tools to red flag risk-taking to mitigate shocks to the system.

comprehensive and of global market system is published weekly and is made available to no cost to regulators the robust data has allowed parties to assess risk using time a comprehensive information. launching the port role to give regulators access to ward granular data to permit global access sharing. 40 regulators use the port role from asia and other agencies. it is prepared to meet the swap-- their reporting requirements. they have made substantial investments to design and develop and implement systems for all five derivative classis.

credit come equity, commodities, interest rates and foreign-exchange. the subsidiaries apply for registration with the cftc for swap data repositories. their ongoing user testing fully operational in august for interest-rate and credit default swaps ended vance of the september / october deadline as outlined this morning. final decisions for global trade repositories, regulators are concerned of the fragmentation of data. this is best exemplified from dodd/frank and is critical during the implementation that the reporting date it is