Securities and Exchange Commission (SEC) Chairman Mary Schapiro appeared before the U.S. Senate's Subcommittee on Securities, Insurance, and Investment yesterday to testify regarding the regulation of over-the-counter (OTC) derivatives. Her testimony provided an overview of OTC derivatives markets and made the case for bringing securities-related OTC derivatives under the purview of the SEC.
Chairman Schapiro noted that while transactions involving OTC derivatives can replicate the economics of securities transactions without involving the purchase or sale of actual securities, such transactions currently fall outside the umbrella of federal securities laws. As such, Chairman Schapiro discussed a "functional and sensible approach to regulation", in which the SEC would have primary responsibility for securities-related OTC derivatives, while the responsibility for all other derivatives, including those related to such things as commodities, energy and foreign exchange would rest with the Commodity Futures Trading Commission. Citing the close relationship between the securities markets and securities-related OTC derivatives, Chairman Schapiro emphasized the importance of ensuring that such OTC derivatives be "subject to the federal securities laws so that the risk of arbitrage and manipulation of interconnected markets is minimized." Subjecting securities-related OTC derivatives to federal securities laws would also provide a unified and consistent framework for securities regulation.
For the testimony of the other witnesses that appeared before the Subcommittee, click here.