The Chairman of the Commodity Futures Trading Commission, Gary Gensler, wants tighter regulation of dealers in over-the-counter derivatives. In a speech to the Council on Foreign Relations in New York last week, the CFTC Chairman explained that leading up to the present financial crisis, it was assumed the banks that deal in derivatives were already regulated, and thus did not need to be explicitly regulated for their derivatives transactions. He said this assumption was flawed.
Gensler proposed an approach that would involve regulating dealers, bringing sunshine to the opaque OTC derivatives markets, and use regulated clearing houses for standardized transactions to reduce interconnectedness in the financial system. Gensler cited market estimates that approximately half of energy and other commodity contracts could potentially be standardized.
Concerning a bill passed by the U.S. House of Representatives last month, Gensler said that it did not include everything the CFTC had hoped, but it was still a strong bill.