Americas: US CFTC chairman calls for consistency in OTC derivatives reform

p>US Commodity Futures Trading Commission Chairman Gary Gensler on Tuesday called the new US law and European Union proposals on over-the-counter derivatives reform "largely consistent," but pressed European officials to adopt provisions, including position limits on energy markets, in line with US efforts, according to a copy of his prepared remarks to attendees at a forum in Belgium.

Gensler, who was scheduled to speak at the Eurofi Financial Services Forum in Brussels on Tuesday, praised the OTC derivatives reform proposal unveiled by the European Commission this month and said it largely mirrored the derivatives reforms within the US' Dodd-Frank Wall Street Reform and Consumer Protection Act. President Barack Obama signed that legislation into law on July 21.

Both the European proposal and US law have "strong" capital and margin requirements for derivatives dealers and both require the clearing of standardized derivatives, he noted.

Both proposals also have exemptions for non-financial entities, such as energy companies, from these clearing requirements if they are using swaps to hedge commercial risk, Gensler said.

Gensler said that CFTC staff members are monitoring the EU proposal to "ensure consistency" as rules on reforms in the US are written.

"Though we have different political systems and different cultures, our coordination and cooperation on financial regulatory reform is leading to two largely consistent approaches," Gensler said, according to a copy of his prepared remarks.

In his speech, Gensler also pushed European regulators to adopt new rules that standardized swaps be traded on exchanges or swap execution facilities similar to the US proposal and to adopt business conduct standards similar to those in the Dodd-Frank Act.

He also stressed the need for position limit authority to apply to off-exchange derivatives.

"The more transparent a marketplace is to the public, the more liquid it is, the more competitive it is and the lower the costs for companies using derivatives to hedge risk," Gensler said. "Importantly, transparent trading also gives clearinghouses reliable pricing to best manage their risk."

Gensler said that since the bulk of global OTC derivatives activity takes place in the US and EU, "the effectiveness of reform depends on our ability to cooperate and find general consensus on this much-needed regulation."

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