SEC, CFTC Preparing OTC Derivatives Legislation

SEC, CFTC Preparing OTC Derivatives Legislation - 6/11/2009

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SEC, CFTC Preparing OTC Derivatives Legislation
Jacqueline Bell

Securities Law 360. June 11, 2009
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EXCERPT: The U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission are reportedly in the process of drafting legislation to increase their ability to regulate over-the-counter derivatives, splitting the oversight responsibility between them. The legislation being drafted shows that plans to combine the two agencies are increasingly unlikely to come to fruition, Reuters reported Wednesday, citing sources familiar with the discussions who said the agencies will likely share regulatory authority of OTC derivatives. The Obama administration's early idea to combine the two agencies has proved politically difficult, as the administration works to tighten financial regulations in the wake of the credit crisis. The SEC may take over regulation of credit default swaps, a type of derivative widely blamed for contributing to the credit crisis, Reuters reported, citing sources familiar with the legislation being drafted. Robert Claassen, chair of the derivatives and structured products group at Paul, Hastings, Janofsky & Walker LLP, noted that there is already significant regulatory sharing arrangements between agencies in these types of areas. And the government's proposals to increase margin requirements and position limits, as well as boost position disclosure requirements would be relatively simple to do under the existing regulatory regime, Claassen said. “It'll be interesting to see how they divide up the world of entities between the two,” Claassen said. On May 13, the Obama administration released details of a plan to require all standardized OTC derivatives to be cleared through central clearinghouses as part of an effort to ensure stability in the financial markets. All OTC derivatives dealers and other firms that create exposures to counterparties should be subject to robust regulation, including conservative capital requirements, business-conduct standards, reporting requirements and initial margin requirements, U.S. Treasury Secretary Timothy Geithner said in May.

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