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CFTC Chairman Gensler urges end to derivatives secrecy
By Aline van Duyn
Financial Times, London
Wednesday, March 10, 2010
A leading US financial regulator on Tuesday called for the prices of derivatives trades to be disclosed in the same way as stock prices, saying only large Wall Street banks benefited from the current lack of transparency.
Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC), said standard credit default swaps and other privately traded over-the-counter derivatives needed drastic reform, reflecting their role in the financial crisis.
His call came as European leaders including Angela Merkel, German chancellor, called for a clampdown on speculative trading in sovereign credit default swaps, which offer investors protection against a government default.
"The only parties that benefit from a lack of transparency are Wall Street dealers," Mr Gensler told a New York derivatives conference. "Right now we have a dealer-dominated world, and that nearly drove us off a cliff."
Mr Gensler, a former Goldman Sachs executive, said: "To promote public transparency, standard over-the-counter derivatives should be traded on exchanges or other trading platforms." He also called for explicit regulation of derivatives dealers and the use of clearing for standard OTC derivatives.
Mr Gensler's call for increased "post-trade transparency" -- or a "tape" on which prices would be reported soon after trade -- were also endorsed by other US regulators with responsibility for derivatives markets.
Theo Lubke, head of markets infrastructure division at the Federal Reserve Bank of New York, said "post-trade transparency" was an important priority. He said the recent uncertainty around the trading in credit default swaps on Greece highlighted the importance of greater transparency.
"The lack of good knowledge by regulators" about OTC derivatives "is not a tenable long-term equilibrium," he said.
Elizabeth King, associate director at the Securities and Exchange Commission said she was "very supportive" of increased transparency. She urged dealers -- many of whom argue that reporting prices soon after they are traded could damage liquidity by revealing traders' positions -- to at least begin working on how post-trade transparency could be achieved.
"We want to get to a point at which transparency can at least be discussed," she said. "It is not just a yes or no answer," she said, adding that it could work for some OTC derivatives and not for others.
One of the important questions that still has to be answered is what counts as a "standard" derivative.
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