5.13.2009 SEC Chairman Mary L. Schapiro began her speech by noting that there is widespread agreement that OTC derivatives, particularly credit default swaps, may have contributed greatly to the “financial mess we’re cleaning up today.” She stated that the lack of clear regulatory authority over this vast market has hindered the ability of regulators to fully understand how this market functions or to ensure that basic standards of fairness are followed.
She stated that reporting and record-keeping in the OTC derivatives market are key tools that the SEC would need to identify suspicious trading patterns or better understand systemic risks.
In addition, she noted that central clearing for credit default swaps and other OTC derivatives would bring to this market much-needed transparency. Such transparency will enable regulators to better monitor transactions that are effected through the use of a central counterparty. Importantly, central clearing would also mitigate the systemic risks created by OTC derivatives.
Finally, Chairman Schapiro stated that mitigating the systemic risks created by OTC derivatives has been a central goal of these efforts. The SEC has been very supportive of the efforts to improve the risk management practices of OTC derivatives market participants. It has also supported the efforts to move credit default swaps—an important segment of the OTC derivatives market—onto a central clearing platform.
Click http://www.sec.gov/news/speech/2009/spch051309mls.htm to access Chairman Schapiro’s full remarks.