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5.18.2009

Market Buzzes About Agency Roles In OTC Regulation - Derivatives Weekly Online

By Katy Burne
In the wake of U.S. Treasury Secretary Timothy Geithner's call last week to introduce sweeping regulations on over-the-counter derivatives (DW Online, 3/13), market participants are concerned about the lack of clarity over which agency will lead the charge.

Susan Ervin, partner and head of derivatives at law firm Dechert in Washington, D.C., said agencies are likely to cooperate before President Barack Obama decides on an integrated regulatory framework that involves both the Securities and Exchange Commission and the Commodity Futures Trading Commission. "I think it'll be a patchwork until there is an Obama plan," she said, noting the CFTC could take the lead on clearing, leaving the SEC to regulate individual transactions.

But Jamie Cawley, CEO at IDX Capital, an interdealer broker for credit derivatives, told Derivatives Week the concern is that the two agencies have sued each other before on jurisdiction grounds. "This is putting the cart before the horse. While the regulations should be welcomed, the issue is who is doing the regulating," he said. "They don't have a long history of working together. It was through loopholes that the credit default swaps market was allowed to operate unregulated since 2000."

Cawley said the best solution would be for the government to merge the agencies into one regulator and sort the issue of regulation the OTC markets, along with other pending projects, from there. Having brokers, for example, regulated by the Financial Industry Regulatory Authority and a government agency would be "messy and in some ways contradictory," he said.
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