Commodity Futures Trading Commission Chairman Gary Gensler spoke on March 9 before the Senate Committee on Energy and Natural Resources regarding the regulation of over-the-counter (OTC) derivatives, particularly with respect to energy markets. Chairman Gensler stated that to promote transparency and reduce risk, OTC derivative reform should include the following components:

  • establish an explicit regulatory framework for swap dealers and major swap participants, including requirements relating to capital, margin, business conduct standards, recordkeeping and reporting;
  • bring transparency by requiring standardized OTC derivatives be traded on regulated transparent exchanges or trade execution facilities, including requiring public reporting of key trading data; and
  • require financial institutions that are “too big to fail” and “too interconnected to fail” to bring all of their standardized derivatives transactions to central clearinghouses.

Chairman Gensler stated that if Congress determines certain commercial end-users should be exempt from any clearing requirements, hedge funds should not be among those exempt entities with respect to their OTC transactions. Further, Chairman Gensler stated that any commercial end-user exempt from clearing should not be granted an exemption from a transparency requirement.

Chairman Gensler’s speech can be found here. Click here to read a summary of previous remarks made by Chairman Gensler regarding OTC derivatives reform in the January 29, 2009, edition of Corporate and Financial Weekly Digest.