Commodity Futures Trading Commission Chairman Gary Gensler spoke on January 27 at Fordham University College of Business Administration regarding his belief that regulatory reform must be enacted to promote transparency and reduce risk in the over-the-counter (OTC) derivatives markets. Chairman Gensler stated that comprehensive OTC derivative reform should include the following regulation:
- explicitly require regulators to establish capital and margin requirements for all derivatives dealers;
- require derivatives dealers to meet business conduct standards that both protect the integrity of the market and lower risk from OTC derivatives transactions. Such standards should ensure the timely and accurate confirmation, processing, netting, documentation and valuation of all transactions;
- subject derivatives dealers to recordkeeping and reporting requirements for all of their OTC derivatives transactions—including a complete audit trail and mandatory reporting of trades; and
- require dealers to bring all of their standardized derivatives transactions onto transparent trading venues and to regulated clearinghouses.
Chairman Gensler also highlighted the following three recommendations to enhance their authorities in the futures and securities markets that were included in the October 2009 CFTC and Securities and Exchange Commission joint report on harmonization of regulation:
- establish requirements for commodity and futures dealers to avoid conflicts of interest similar to information firewalls between analyst and trading functions that currently exist for securities dealers;
- govern broker-dealers, investment advisers and commodity trading advisors by a uniform fiduciary standard that financial advice should be solely in the interest of the customer (these parties are currently subject to different fiduciary standards when providing investment advice); and
- ban misappropriated government information from use in commodity markets trading.