CFTC's Gensler:Clearinghouses Will Determine OTC Standardization
June 24 2009 - 12:19PM
Dow Jones News
The chairman of the Commodity Futures Trading Commission said
Wednesday that clearinghouses set up to handle over-the-counter
derivatives will determine which products can be cleared.
Gary Gensler, chairman of the U.S. futures regulator, said that
financial authorities' responsibility lies in ensuring clearing
entities meet "international standards" in risk management and
liquidity.
The Obama administration has called for all "standardized"
over-the-counter derivatives to be cleared by a central
counterparty as a means of reducing systemic risk in off-exchange
markets.
Speaking to the press on the sidelines of the Managed Funds
Association Forum in Chicago, Gensler said that the definition of
"standardized" is up to clearinghouses, most of which are backed by
exchanges.
"If a clearinghouse accepts it, it should be considered
standardized," Gensler said.
Clearinghouses for over-the-counter derivatives will be subject
to risk management and governance standards, Gensler said, which
will ensure broad participant access and that the entities "are not
just controlled by the dealers."
Gensler said that the CFTC and other regulators will work with
international counterparts to ensure a global set of standards for
over-the-counter clearing services.
Exchanges, including IntercontinentalExchange Inc. (ICE), CME
Group Inc. (CME), NYSE Euronext (NYX), Nasdaq OMX Group (NDAQ) and
Deutsche Boerse AG (DB1.XE) have moved quickly to set up central
counterparties for over-the-counter instruments in the wake of the
financial crisis.
Government efforts to reduce risk in products like credit
default swaps have provided fuel for exchanges' push to clear more
OTC products, while dealers and hedge funds have laid out targets
for routing more of the business through central
counterparties.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
jacob.bungge@dowjones.com