6.4.2009 CFTC Chairman Gary Gensler testified before the U.S. Senate Committee on Agriculture, Nutrition and Forestry to request the urgent enactment of broad reforms to regulate OTC derivatives to ensure that the OTC derivatives markets are transparent and free from fraud, manipulation and other abuses. Gensler proposed the following solutions for the regulation of OTC derivatives: (1) a comprehensive regulatory framework; (2) the explicit regulation of institutions that deal in derivatives; (3) requiring regulators to promulgate capital requirements for all derivatives dealers; (4) imposing business conduct standards including measures to both protect the integrity of the market and lower the risk from OTC derivatives transactions; (5) regulating the derivative market functions; and (6) central clearing by moving the standardized part of the OTC markets onto regulated exchanges and regulated transparent electronic trading systems and by customizing derivatives. Gensler recommended amending the Commodity Exchange Act with positive new authority for the CFTC to regulate OTC derivatives, including defining the term “OTC derivative” and giving the CFTC clear authority over all such instruments. In closing, Gensler brought up two other points with the Committee: (1) including a provision in a regulatory reform package to expand the CFTC’s jurisdiction over fraudulent “rolling spot” commodity contracts; and (2) providing the CFTC with clear statutory authority to ensure that traders that are trading on a foreign board of trade through trading terminals in the United States comply with the same U.S. position limits and reporting requirements when trading a foreign contract that settles against any price of a contract traded on a U.S. exchange.
Click http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/opagensler-3.pdf to access Chairman Gensler’s testimony.
Chairman Gensler also testified before the Senate Banking Subcommittee on Securities, Insurance, and Investment on the regulation of OTC derivatives on June 22, 2009. Click http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/opagensler-4.pdf to access his testimony before that Subcommittee.