In Interviews with the Hedge Fund Law Report, Reps. Scott Garrett (R-New Jersey) and Maxine Waters (D-California) Take Sharply Opposing Views on Derivatives Regulation

Last week, the White House proposed comprehensive regulatory language for over-the-counter (OTC) derivatives markets.  The “Over the Counter Derivatives Markets Act of 2009” requires transparency for all OTC derivative transactions; strong prudential and business conduct regulation of all OTC derivative dealers and other major participants in the OTC derivative markets; and provides regulatory and enforcement tools to prevent manipulation, fraud, and other market abuses.  The Administration, according to a statement, “looks forward to working with Congress to pass a comprehensive regulatory reform bill by the end of the year.”  A main component of the reform will require central clearing and trading of standardized OTC derivatives to be regulated by the CFTC or a securities clearing agency regulated by the SEC.  The legislations’s higher capital requirements and higher margin requirements for non-standardized derivatives would presumably encourage greater use of standardized derivatives to facilitate substantial migration of OTC derivatives onto central clearinghouses and exchanges.  For transparancy, all relevant federal financial regulatory agencies will have access, on a confidential basis, to the OTC derivative transactions and related open positions of individual market participants.  In addition, the public will have access to aggregated data on open positions and trading volumes.  Before the legislative language was released, the Hedge Fund Law Report interviewed two members of Congress with opposing views on the appropriate degree of regulation of the OTC derivatives market.  On July 30, 2009, we interviewed Rep. Scott Garrett (R-New Jersey), and on June 28, 2009, we interviewed Rep. Maxine Waters (D-California).  Garrett espouses a strong laissez faire attitude with respect to OTC derivatives, while Waters would like to see them outlawed altogether.  The full transcripts of those interviews are included in this issue of the Hedge Fund Law Report in the conviction that insight from members of Congress will help hedge fund professionals predict how the Administration’s bill may change as it works its way through Congress.

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