CFTC Seeks Authority Over All Derivatives

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As Commodity Futures Trading Commission Chairman Gary Gensler prepared for testimony to be delivered to the Senate Agriculture Committee today in Washington, he stated that customized derivatives need regulation even when they are exempt from public clearinghouses.       “Regulators would create rules to make sure that such specialized derivatives aren’t slightly modified standardized products meant to evade public reporting,” Gensler said. 

Gensler will also argue that the CFTC should also have the authority to impose reporting and recordkeeping requirements, set margin mandates and punish market abuses.  “All derivative dealers should be subject to capital requirements, initial margining requirements, business conduct rules and reporting and recordkeeping requirements.  Standards that already apply to some dealers, such as banking entities, should be strengthened and made consistent, regardless of the legal entity where the trading takes place.”  Gensler further stated.   “We should require that all derivatives that can be moved into central clearing be required to be cleared through regulated clearinghouses and brought onto regulated exchanges or regulated transparent electronic trading systems”   Gensler said.

About 10 percent of bank customers use electronic systems to trade over-the-counter derivatives. That compares with about 90 percent of inter-bank trades that are done electronically through inter-dealer brokers such as London-based ICAP Plc or Dealerweb.

Transactions in the $684 trillion over-the-counter derivatives market, typically conducted over the phone between banks and customers, would be regulated under a proposal from Treasury Secretary Timothy Geithner.  Senate Agriculture Committee Chairman Tom Harkin, an Iowa Democratic Senator, introduced legislation this year that would require all over-the-counter derivatives contracts to be traded on regulated exchanges.  This change would allow easier monitoring of the market after the credit crisis that has caused more than $1.4 trillion in asset writedowns and credit losses at financial companies worldwide. 


Anna Timone (195 Posts)

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