CFTC urges margin rules for dealers

All derivatives dealers should be compelled to meet capital and margin requirements on over-the-counter derivatives trades, the Commodity Futures Trading Commission has said.

Testifying at a US House Committee on Agriculture review of the Department of Treasury’s proposals to regulate OTC derivatives, CFTC chairman Gary Gensler stated comprehensive oversight was “even more important for those dealers who are not currently regulated or subject to capital requirements.”

When asked whether capital and margin requirements would create a market monopoly for the largest banks, Gensler reiterated the need for a buffer and warned that solely targeting banks might create advantages for non-regulated institutions.

Gensler also asserted the need for two complementary regulatory regimes – one for dealers and one for the markets. Furthermore, this regulatory framework should comprehensively cover both standardised and complex swaps. “We should eliminate exclusions and exemptions from regulation for OTC derivatives,” he said.

SEC chairman Mary Schapiro, also testifying, outlined the need to ensure central clearing houses are capable of risk-managing standardised contracts, and cautioned the failure of a central clearing house would be a catastrophic event.