Dodd-Frank Swaps Rules Help the ‘Real Economy,’ Gensler Says

Regulation of the $583 trillion over-the-counter derivatives market will “bring tangible benefits to the real economy,” Gary Gensler, chairman of the Commodity Futures Trading Commission, said today in New York.

“It is essential that we have comprehensive oversight of these markets to protect and benefit both end-users of derivatives and the broader American public,” Gensler said at a conference sponsored by the Levy Economics Institute of Bard College.

The Dodd-Frank Act, approved last July, directs the CFTC and the Securities and Exchange Commission to write rules governing the derivatives market. The law was meant to reduce risk and increase transparency after unregulated swaps trading exacerbated the 2008 financial crisis.

The agency is tasked with setting margin requirements to secure trades against default, impose restrictions on the number of contracts a single firm can hold in commodities such as wheat and oil, and increase transparency by ordering that most standardized trades be guaranteed by clearinghouses and traded on exchanges or swap-execution facilities.

“Derivatives markets and effective oversight of those markets matters to corporations, farmers, homeowners and small businesses,” Gensler said. “The recent increases in commodity prices highlight the need for effective oversight that promotes fair and orderly derivatives markets.”

Crude Gain

Crude oil futures have advanced 16 percent this year on the New York Mercantile Exchange while corn has gained 20 percent on the Chicago Board of Trade.

The CFTC has faced criticism from Republican lawmakers, the CME Group Inc. and others in financial industry for moving too quickly and not adequately estimating the costs of regulations.

“The CFTC has placed speed over deliberation,” Representative Michael Conaway, Republican of Texas, said at a House Agriculture Committee hearing today in Washington. “The rules have been proposed in a sequence that has created confusion.”

Gensler has said the commission will finish some rules after the mid-July deadlines required under Dodd-Frank.

Derivatives, including swaps, are financial contracts tied to commodities, stocks, bonds, interest rates or events, such as the default of a company.

To contact the reporters on this story: Silla Brush in Washington D.C. at sbrush@bloomberg.net; Asjylyn Loder in New York at aloder@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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