16 June 2013

CFTC/Gensler: "International Swaps Market Reform - Promoting transparency and lowering risk"

In an article for the Banque De France's April 2013 Financial Stability Review, Gensler writes that regulators around the globe are making great progress, but the task of bringing transparency to the markets and protecting the public should be completed.

The role of finance and financial markets is to ensure that finance serves the rest of the economy. It does so by allocating and pricing the savings and investments of the public and helping businesses grow and manage their risks. It is to allow the public unfettered access to markets and information and to establish prices transparently and free of fraud and manipulation. As the financial system failed in 2008, the swaps market, which was basically not regulated in the United States, Europe, Canada or Asia, failed to meet these objectives. The 2008 global financial crisis caused great damage. It affected millions of bystanders far and wide.

Eight million American jobs were lost, and families across Europe are still struggling with the ongoing debt crisis. Since the swaps market emerged in the 1980s, it has operated without the basic transparency and common sense rules of the road that Americans have benefitted from since the 1930s. In the aftermath of the Great Depression, President Roosevelt and Congress put in place securities and futures market reforms. Those historic reforms established a foundation of transparency, competition and market integrity for the futures and securities markets. This democratisation of financial markets has led to many decades of US economic growth and innovation.

The Commodity Futures Trading Commission (CFTC) is one of two US market regulators. Futures have traded in the United States since the Civil War, when farmers and grain merchants came together and created a new type of marketplace. It was not until 60 years later that the Congress first passed legislation to regulate these markets. Our predecessor was set up in the 1930s to oversee the commodities market and related futures market.

The derivatives markets, both the futures and swaps markets, allow companies to manage their risk through a derivatives contract, allowing them to focus on servicing customers, producing products, innovating and  investing in the economy. With financial reform, the CFTC now oversees both the futures and swaps markets. These markets are vast. Together, the notional value of the US markets is more than $300 trillion – or more than $20 of derivatives for every dollar of goods and services produced in the US economy.

The role of finance is to serve the rest of the economy. Swaps market reform is about ensuring the vast derivatives marketplace serves the rest of the economy. In the aftermath of the 2008 global financial crisis, the G20 leaders agreed that it was time to bring transparency and oversight to the opaque swaps market. Since then, there has been significant global progress on reform. We continue to work in a coordinated way to implement the critical reforms agreed to in the aftermath of the global financial crisis. We must complete the task to bring transparency to these markets and protect the public.

Full article

© CFTC - Commodity Futures Trading Commission