bad, very bad, bad bad bad
Reuters Finance News
U.S. Won't Seek Regulation Of Derivatives
By Andrew Clark Oct 30 12:39am ET
WASHINGTON (Reuters) - In a long-awaited report set for release next
week, U.S. regulators will conclude that the multi-trillion dollar
market in privately-arranged financial derivatives does not need
government regulation, people familiar with the report said.
The regulators will tell Congress that so-called over-the-counter, or
OTC, financial derivatives should not be subject to U.S. futures laws,
they said. Derivatives are investments whose values are linked to
underlying factors such as interest or exchange rates.
Market participants have worried for years that U.S. futures regulators
might try to assert jurisdiction over the currently-unregulated OTC
market, which could have thrown the legal enforceability of widely-used
derivatives contracts like swaps into question.
A working group of U.S. regulators, including the Federal Reserve,
Treasury, Securities and Exchange Commission and Commodity Futures
Trading Commission (CFTC), has been studying the issue for over a year.
Congress will use their findings in a rewrite of U.S. futures laws due
to be completed next year.
The regulators decided that the sophisticated, usually institutional,
investors who use financial derivatives to manage risk do not need the
same sort of protections as small investors in exchange-traded futures
markets, the people familiar with the report said.
The CFTC, which regulates U.S. futures trading, last year caused a furor
when it issued a study that suggested it could claim authority over the
OTC market. The study was bitterly opposed by other U.S. financial
regulators.
Under its new chairman, William Rainer, the agency has reversed course,
apparently allowing the working group to reach a consensus.
``The national interest in fostering economic efficiency in the OTC
derivatives market can only be accomplished by establishing clear legal
certainty for the over-the-counter market,' Rainer said in a speech
Thursday, adding that U.S. futures laws were ``not designed to regulate
the OTC market.'
The working group does recommend that commodity derivatives remain
subject to futures laws and the CFTC's jurisdiction, the people familiar
with the report said.
The group also focused on the use of centralized clearing houses for
financial derivatives as a way of mitigating the economic risks
associated with the OTC market, they said, leaving open the question of
their future regulation.
Traditional U.S. futures exchanges have long complained that the OTC
market has been eating into their business, and the group will back a
CFTC initiative to deregulate financial futures trading to allow them to
compete on a more level playing field, the people familiar with the
report said.
``The CFTC's regulatory policy must ensure that there is a balance
between the regulatory environment for OTC derivatives and the level of
regulation applied to the financial futures markets,' Rainer said
Thursday. ``These markets are simply too important to the nation's
economy to ignore the potential damage from disparate regulatory
structures.'
Congressional aides said Friday they expected the report to be completed
next week. |
