For a benchmark rate for any commodity to be reliable and have integrity, it’s best to be anchored to real, observable transactions.
A rate that relies upon observable transactions is anchored by the reality of that price discovery.
A rate that relies upon observable transactions has a lit path to credibility.
A rate that relies upon observable transactions is less vulnerable to misconduct.
Martin Wheatley and I are co-chairing the International Organization of Securities Commissions task force that will build on the plan he recently published and examine next steps on benchmark interest rates. We had our first meeting in Madrid last week.
Among the critical topics before us are issues market participants might confront when seeking to make a transition to a new or different benchmark and potential mechanisms to overcome those challenges. I look forward to broad global consultation on these critical matters.
In conclusion, this week marks a new era in the swaps marketplace.
The 1930s reforms brought light to the securities and futures markets, helping to promote decades of economic growth and are at the core of our strong capital markets.
The swaps market reforms going into effect this week hold out similar potential. Bright lights of transparency will shine, dealers will come under comprehensive regulation and standardized swaps between financial entities shortly will be centrally cleared. The public will benefit and our markets will be stronger in this new era.
Text of a Keynote Address by CFTC Commissioner Gary Gensler before the George Washington University Center for Law, Economics and Finance Conference on Oct. 10, 2012.