Monday, 24 August 2009

Square Mile Alert: Update on draft OTC Derivatives Markets Act of 2009

Bloomberg reports that Gary Gensler, chairman of the CFTC wants Congress to give the bill a little more of this and a little less of that. He is asking that "the bill ... get rid of exemptions for small derivatives dealers, repeal parts of the Federal Deposit Insurance Corporation Improvement Act, and impose requirements to set aside money to back up trades." Apparently Timothy Geithner already told regulatory bigwigs to "stop campaigning" for changes but Gensler still put forward his ideas in a letter.

Get ready for massive changes my friends:
"The derivatives legislation asks Congress to impose higher capital and margin requirements, move most derivatives to regulated exchanges and clearinghouses and impose supervision over all dealers."
If OTC products are moved to regulated exchanges they're not so OTC anymore are they? Hmmm what to call them...

It also includes a provision to “better protect” small municipalities and “unsophisticated investors” by limiting their eligibility to trade derivatives."
He is right about this - unsophisticated investors should not be dealing in OTC and derivatives products, but why does local government need the bigger government to tell them that? Sheep.

Finally - for those of you in the SquareMile or OTC world: check out this link which discusses Gensler's difference of opinion on regulations for FX swaps/forwards and clearing/trading requirements.