CFTC, SEC eye clearinghouses governance - Gensler
Congress should give U.S. securities and futures regulators the authority to ensure clearinghouses are protected against conflicts of interest, the chairman of the Commodity Futures Trading Commission said on Monday.
Gary Gensler outlined his vision for clearinghouses as two U.S. Senate committees work to finalize financial regulatory reform bills that will include new oversight for over-the-counter derivatives.
Open governance would ensure that clearinghouses are not governed by parties that might have a conflict of interest or financial stake in particular transactions, Gensler said in remarks prepared for the Institute of International Bankers.
The (Securities and Exchange Commission) and the CFTC should have clear rule-writing authority to oversee and ensure clearinghouse governance to protect against conflicts of interest, promote open and competitive markets and promote the public interest, Gensler said.
The House version of the regulatory reform bill passed in December limits financial firms to 20 percent ownership stakes in clearinghouses for OTC derivatives to avoid conflicts of interest.
The Senate Banking Committee has said it will look at clearinghouse ownership and governance as part of its financial regulatory reform bill.
The Senate Agriculture Committee, which has jurisdiction over the CFTC, is also working on a bipartisan bill to grant new oversight for OTC derivatives.
Like the House bill, the Senate bills are expected to require clearing for OTC derivatives.
As clearinghouses have an important say in which contracts are subject to a clearing requirement, it is essential that we remove potential conflicts of interest from that process, Gensler said.
Gensler, a former Treasury official in the Clinton administration, has backed getting as many OTC transactions as possible to go through clearing and trade on exchanges.
Clearinghouses should be required to take on trades from any regulated exchange or swap execution facility, Gensler said.
Clearinghouses take on the risk between two parties in case either side fails to meet its obligations. They require derivatives dealers to post collateral in case one party fails in order to prevent additional problems throughout the financial system.
Currently, over-the-counter derivatives transactions stay on the books of the dealers that arrange them, often for many years after they are executed, Gensler said.
(Editing by Walter Bagley)
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