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July 11, 2013

CFTC’s Gensler Is Right on Need for Derivative Rules Now

What with Egypt’s coup and the asylum-seeking escapades of national-security leaker Edward Snowden, you may have missed the fratricide taking place at one of the U.S.’s most important financial regulatory agencies.

The Commodity Futures Trading Commission is in the final stages of deciding how broadly to apply new derivatives rules across borders. U.S. and European Union regulators have been at odds over the issue, but a deal is imminent, according to Bloomberg News. This is an underreported yet vital part of efforts to fix financial regulation.

Progress has been slow on all fronts. This week, for example, U.S. regulators proposed more demanding capital standards for big banks; if adopted, which isn’t certain, these would come into effect in 2018, 10 years after the financial meltdown began. The need for still more discussion and the dangers of further delay are main points of contention in the quarrel over derivatives.

CFTC Chairman Gary Gensler wants to impose new standards not just on overseas units of U.S. banks and foreign institutions operating in the U.S., but also on hedge funds in the Caribbean whose owners are American and on foreign banks if one side of a derivatives deal is guaranteed by a U.S. parent. Such expansive jurisdiction is a controversial idea in its own right. In addition, Gensler wants action now.”

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Read full Bloomberg editorial here

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