Demonizing derivatives

CFTC Chairman Gary Gensler kicked off the new year by outlining his goals for regulatory reform in a speech before the Council on Foreign Relations today. In it, Gensler blamed over the counter (OTC) derivatives for much of the financial crisis of 2008. "I believe that over the counter derivatives were at the heart of the crisis. We have all witnessed firsthand the effects that unregulated derivatives had across the entire economy," he said. Gensler outlined three key goals for regulatory reform: to regulate derivatives dealers, to "bring sunshine" to opaque OTC derivatives markets, and to move standard OTC transactions to regulated clearinghouses. "It is time to change the way these markets function and the way they are regulated to benefit the public and to protect the American taxpayers," he said.

With any talk of its possible forthcoming IPO strictly verboten, regulation was one of the topics discussed at the Chicago Board Options Exchange (CBOE) annual media luncheon yesterday. CBOE Chairman Bill Brodsky noted that the markets were still working well and that any new regulations should be done in a "careful way." He said CBOE is working closely with Congress and the SEC, but it was hard to say when many regulatory issues would be addressed, although he said that whatever gets done in Congress had to be done by the end of June. He also noted that Washington should stop demonizing high frequency trading. Although Washington is giving it a "dirty name," Brodsky said high frequency trading actually has resulted in better, faster and tighter markets and leveled the playing field.

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