With regulatory reform in Washington THE issue affecting the futures industry right now, Futures magazine is in D.C. this week to talk with Congress and the CFTC about what's ahead.
House Agriculture CommitteeChairman Collin Peterson (D-MN), whose Peterson-Frank Amendment to HR 4173, passed by the House in December, established a central clearing requirement for OTC derivatives, says, "the way our legislation is crafted right now, you will see a lot of [OTC products] standardized, 70%-80% of this stuff will be standardized." He mentioned how the House Ag Committee is working with European regulators and that CFTC Chairman Gary Gensler is focused on coming out with harmonized international regulation.
Peterson doesn't believe position limits will force trading overseas and said big banks should be subject to the same position limits as speculators. In response to traders who say new regulations could impede the way they do business, he said, "it will affect the way they do business, and it should. Our economy got built up based on all of this money, and it was a false economy, and now we're getting down to a real economy. To get to the real economy, it's going to mean less business [for traders and banks]. They'll survive." He says OTC market regulation was the most important regulatory issue at the moment, along with making sure banks have adequate collateral. "The OTC market is so huge and it's got to be brought out in the open."
Next, we talked with CFTC Commissioner Jill Sommers about the issue that's come under much criticismfrom the forex industry, CFTC's recent proposal to reduce leverage for OTC forex firms to 10:1. "We don't have a response yet; that's the purpose of putting it out for comment. We've been working on this proposal for a number of months." Obligations for CFTC to write rules in this area came in May of 2008 with the passage of the Farm Bill. "When you put a proposal out for comment, there's always going to be parts of the proposal that the industry has concerns about and that's the purpose of putting something out for comment." Staff will review comments and will come to Commission with analysis of views and recommendations for a final rulemaking. She says final rulemaking is "several months away." The comment period ends March 22. Sommers also said that she "does not have knowledge" about how the CFTC arrived at the 10:1 leverage calculation.
Stay tuned for reaction from Washington insiders including former CFTC Chairman Sharon Brown-Hruska, and for our larger feature on regulation, coming up in the April issue.