OTC market may have to accept regulatory change post-Enron, says CFTC head

The over-the-counter (OTC) derivatives industry may have to accept changes to regulation following the collapse of Enron, James Newsome, chairman of the US Commodity Futures Trading Commission (CFTC) warned this morning.

While Newsome said most Enron-related issues are focused on corporate governance and accounting rules, he added that changes in rules covering OTC derivatives are possible.

But Newsome, speaking to delegates at a London derivatives conference organised by trade bodies the Futures Industry Association (FIA) and the Futures and Options Exchange (FOA), cautioned that regulators have to wait for the “big picture” surrounding Enron’s demise before advocating any financial market changes.

“I am confident we will figure out what happened and we will make changes based on the facts,” said Newsome. “It is all too easy to make knee-jerk reactions that can effect derivatives markets. But we will make recommendations on this area if we need to do so. When we see the big picture we will make recommendations to Congress."

Newsome, who said he was hesitant to say much about Enron as the CFTC is making an active investigation into the matter, praised the co-operation of regulators. “I have never seen such co-operation,” he said.

“It’s a large, complex and multi-jurisdictional investigation, and I am talking with principals of other US agencies on a weekly basis,” Newsome said. “But at the end of the day we need a regulatory structure that protects regulatory integrity and one that promotes innovation in the markets.

"The CFTC does not want to stifle market innovation," he added. "Regulators should not lead the markets, but study where they want to go and react accordingly.”

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