One day after similar hearings by the Senate Committee on Agriculture, Nutrition & Forestry, the House Committee (“the Committee”) on Agriculture questioned officials from the SEC, the CFTC and the derivatives industry on the role of credit derivatives in the U.S. economy.

Witnesses at the hearing included:


- Walter Lukken, Acting Chairman of the Commodity Futures Trading Commission (“CFTC”);

- Erik. R. Sirri, Director of the Division of Trading and Markets at the Securities and Exchange Commission (“SEC”);


- Robert Pickel, Chief Executive Officer of the International Swaps and Derivatives Association (“ISDA”);

- Professor Henry Hu of the University of Texas Law School;

- Jonathan Short, Vice President and General Counsel of the Intercontinental Exchange (“ICE); AND

- Kim Taylor, Managing Director and President of the CME Group Clearinghouse (“CME”).

The purpose of the hearing was for Committee members to understand how regulators are addressing credit default swaps and to consider possible steps for greater transparency and reduction of systemic risk.

No consensus approach for increasing transparency and reducing risk surfaced during the hearings. The impatience and frustration of Committee members were evident, however, as they tried to understand the relationship of credit default swaps to the current financial crisis and determine the best way to manage risk going forward. Committee members turned often to Professor Hu for explanation and analysis. Some members focused their questioning on whether a clearinghouse would be an adequate solution.

Unlike the Senate hearings on October 14, 2008, the SEC was represented at the House hearings. Representatives from both the CFTC and the SEC agreed that a clearinghouse system would produce positive results. Mr. Lukken (CFTC) preferred a single central clearinghouse for credit derivatives, citing efficiency as the primary purpose. Mr. Sirri (SEC) preferred multiple clearinghouses, claiming that competition would lead to better services and pricing.

Committee members dismissed Mr. Pickel’s (ISDA) call to refrain from regulating credit default swaps, responding that the Committee would not abdicate its responsibility for laying the foundation for regulation. One member compared Mr. Pickel’s position to the “band playing on the Titanic.”

Ms. Taylor (CME) and Mr. Short (ICE) both agreed that a central clearinghouse would bring improvements. However, they disagreed on the entity that should regulate such a clearinghouse. Ms. Taylor supported CFTC regulation, citing a preexisting groundwork. Mr. Short preferred regulation by the Federal Reserve, pointing to its “direct touch on a number of market participants.” Chairman Collin Peterson questioned the wisdom of relying on the Federal Reserve, which has no previous involvement in clearinghouse regulation.

Chairman Peterson called for similar hearings in the future.