Today, U.S. Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler made a statement before the European Parliament's Economic and Monetary Affairs Committee in Brussels, Belgium. Mr. Gensler called for the comprehensive regulatory reform of derivatives and urged international coordination in tightening oversight of over-the-counter credit derivatives markets.
Mr. Gensler noted three critical components to a regulatory framework: (1) the explicit regulation of derivatives dealers so as to set capital and margin requirements and to standardize documentation; (2) that standard over-the-counter derivatives should be traded on exchanges or other regulated trading platforms so as to promote transparency; and, (3) that standard over-the-counter derivatives should be brought to clearinghouses so as to lower risk to the economy.
Mr. Gensler called for additional regulatory reform for credit default swaps and noted that: (1) capital requirements should be set in place so as to take into account the unique risks that credit default swaps pose; and, (2) that market regulators should have clear authority to police the credit default swap market for manipulation and other abuses.
Mr. Gensler also called for limited exemptions to the framework, including a limit on exemptions for derivatives "end-users."
Mr. Gensler's statement in Europe occurred just a day after Senator Christopher Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, issued his draft financial regulatory reform legislation entitled the Restoring American Financial Stability Act of 2010. Senator Dodd's proposed legislation includes comprehensive regulation of over-the-counter derivatives markets.