Tag Archives: CFTC regulation

New Forex Regulations: Overview of Public Comments

Leverage, Inaccessibility for Smaller Traders, and Offshore Threat are Focus of Public Comments

As we’ve discussed in related posts, the CFTC has proposed rules regulating the off-exchange spot forex industry (see Retail FOREX Registration Regulations Proposed).  The CFTC has requested comments from the public and there are currently about 100 public comments on CFTC’s website written in response to the new rule. The comments mainly focus on:

  • Leverage reduction rule (approx. 75/100 comments)
  • Forex industry becoming inaccessible to smaller traders (approx. 35/100 comments)
  • Threat of investors moving their money to offshore firms (approx. 25/100 comments)
  • Opposition to government interference/regulation (approx. 20/100 comments)

[Note: over the weekend the CFTC published some of the backlog of comments it received.  Much of this article was written prior to review of these extra comments (which total approximately 3,663).  We will provide an update on such comments in the future.]

To view all of the comments, click here.

The following is our summary of the comments which have been made thus far.


Leverage Reduction

Approximately 75 of the 100 comments mention a strong or very strong opposition to the new leverage proposal of 10:1. The issue with a reduction of leverage to 10:1 is that investors will have to invest much more money in order to trade what they can currently trade with less capital. Comments regarding leverage include phrases like “strongly object”, “terrible idea”, “unintelligent”, and “strongly oppose”.  The majority opinion is that people should have the freedom and the choice to trade with a higher amount of leverage, and that the federal government’s attempts to lower leverage to 10:1 are “unnecessary” and “intrusive”. John Yeatman Jr. writes,

Please DO NOT reduce leverage in US Forex trading to 10:1…THIS WOULD HAVE A MAJOR IMPACT ON TENS OF THOUSANDS OF TRADERS AND THEIR FAMILIES WHO RELY ON 100:1 LEVERAGE AVAILABILITY TO SUPPORT THEIR FAMILY AND THIS ECONOMY. Please do your part in helping to keep this country great and it’s [sic] freedoms true BY NOT ALLOWING ANYTHING LESS THAN 100:1.

Other comments regarding the leverage proposal include:

  • … strongly objects to new leverage of 10:1
  • … proposed reduction not consistent with futures, which allow a significantly higher leverage
  • … virtually no flexibility trading at 10:1 leverage unless trader has gigantic account balance
  • …reduction in leverage not fair to public…bad for America
  • … new leverage line “out of line with general idea of protecting consumers”
  • …limiting leverage to 10:1 is “a bad idea”
  • …current leverage limit is “more than enough”
  • … CFTC is “unintelligent” to change leverage to 10:1
  • … terrible idea to lower leverage
  • … leverage change is “perversion of the free markets”
  • …leverage restriction “grave injustice” for many who work to secure the American dream of prosperity for themselves and families
  • …leverage limits would delay achievement of financial independence
  • …leverage not dangerous; misuse is
  • …leverage decrease will kill forex business and worsen economic situation in states and worldwide
  • …amount of leverage needs to be at discretion of investors

Smaller Traders

Another argument is that lower leverage will making trading inaccessible for smaller traders but leave the door wide open for larger institutions, since lower leverage requires higher margin (meaning that more money needed to be invested in order to trade). Comments regarding this proposed rules potential affect on smaller traders include:

  • …will stamp out small-time investor
  • …drive smaller guys out of market or offshore
  • …anything lower would be insane for small-time traders
  • …gets rid of investors with small capital so rich can stay rich and poor can stay poor
  • …pushes out small-time investor
  • …denies small trader opportunity
  • …disparate and unintended impact on small traders with lower capital
  • …leave the small, independent traders alone
  • …small businesses are heart of US economy
  • …all small-scale actors will be stifled
  • …10:1 leverage will have unintended consequence of locking out hundreds or thousands of small traders
  • …quit treating the small guy like an idiot
  • …are you trying to allow only rich to trade forex?

Government Interference/Regulation

Many of the comments suggest anger with the government for interfering too much with the forex industry. Michael Thomas writes,

I do not live here in this “free” society to have someone from the government babysitting me. The message that your proposed rules send is that 1) we are not free to make our own choices. 2) The federal government believes that we the general public are too stupid to make decisions for ourselves….I don’t need you, or do I want you getting in the way of my being able to trade as I wish in the United States of America.

Other comments regarding an opposition to increased government interference include:

  • …don’t add more government
  • …not intention of our ancestors to create government which controlled/regulated all aspects of citizens’ lives
  • …the government has no right to control my ability to make profit
  • …unnecessary for Federal government to regulate against individual’s ability to take risks
  • …don’t need government protection; we’re adult traders
  • …not responsibility of government to take away choice from consumers
  • …”big brother” attempt to protect people from “evil” traders and forex hedge funds
  • …stay out of trying to run my personal life

Offshore Threat

In at least 25 of the comments, the public is arguing that the new rules, specifically lower leverage, will drive traders offshore to overseas brokers who may or may not be regulated. Further, a major argument is that the forex industry in the United States will essentially cease altogether as a result of traders moving their forex activities offshore. Comments regarding this offshore threat include:

  • …will send business to London and unregulated offshore markets
  • …consumers will take accounts offshore
  • …will drive smaller guys out of markets entirely or to offshore, unregulated brokers
  • …when traders move accounts offshore, CFTC and NFA will have no control of clients’ trading
  • …I’ve already moved my account offshore
  • …people will do business with offshore brokers

Government Regulation

In terms of the new regulation proposal as a whole, some people support more industry regulation while others are against the idea entirely. Bradford Smith writes,

I feel that regulation of firms is needed…regulation is needed to help people understand the risks such as risk disclosure. [Regulating] the  retail forex market in a similar fashion to how commodities and futures are regulated is a good idea. Stopping companies from trading against their clients is a high priority issue that needs to be stopped.

John M. Bland, on the other hand, who views the proposal as “unfair”,  writes,

…the CFTC has done a lot in recent years to correct many of the problems in the industry…this decision is unfair and anti-competitive.

Other comments regarding opposition to the proposal and/or government interference include:

  • …new rules will destroy US financial firms business and lead to loss of thousands of jobs during the worst economy in decades
  • …regulation should be aimed at encouraging economic growth and innovation vs. restricting it
  • …against proposal
  • …how did forex regulation get in the Farm Bill?
  • …whoever initiated proposal has no knowledge of forex…this rule is utter nonsense…rules for forex in the USA are already quite strict
  • …you are busybody bureaucrats with intrusive minds…you are interested in only one thing: bureaucratic power and complete control of every microscopic aspect of life…you are monsters
  • …rules will harm people who make an honest living trading currency
  • …important to educate and inform, not regulate and ban
  • …proposal is a disaster-in-warning for traders
  • …if it ain’t broke, don’t fix it
  • …proposal is lunacy-communist-legislation
  • …I do not support the proposal…proposal closes doors for forex investors and will make forex market accessible to financial institutions only
  • …vehemently against new, narrow-sighted legislation

Agreement/Disagreement with Proposal

Many of the comments discuss that education about forex and trading risk is the best solution. On a similar note, many traders expressed the fact that anyone who trades in the forex market is aware of the inherent risks, so people who decide to trade are willing to take these risks. There is a general consensus that it is the individual’s, and not the government’s, responsibility to evaluate the level of risk that s/he is willing to take. Remember, higher leverage will be reflected in both your profits and your losses. Thus, if you have high leverage and profit, you will profit a lot more than if your trading had not been leveraged. But the same goes for losses; if you lose, you will lose a lot more based on the higher leverage.

Conclusions Thus Far

The biggest concern thus far is the proposed reduction in leverage to 10:1. Almost every comment mentioned a strong opposition to this rule. Furthermore, most people seem to be concerned that the new regulations will significantly decrease forex activity in the US—if not kill it off—and drive most investors overseas to offshore firms. We will continue to monitor comments received until the March 22 due date. Please leave us a comment below with your feedback. Should you feel inclined, you may submit your own comment to the CFTC through the methods listed above.

To view CFTC’s proposed rules, click here.

How to Comment

Comments must be received by March 22, 2010 and can be submitted the following ways:

  • Through the Federal eRulemaking Portal: http://www.regulations.gov/search/index.jsp. Follow the instructions for submitting comments.
  • By e-mail: [email protected] Include “Regulation of Retail Forex” in the subject line of the message.
  • By fax: (202) 418-5521.
  • By mail: Send to David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street, NW., Washington, DC 20581.
  • Courier: Same as Mail above.

(Note that all comments received will be posted without change to http://www.cftc.gov, including any personal information provided.)


Other related CFTC articles include:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog and provides forex registration services to forex managers. Mr. Mallon also runs the Forex Law Blog.  He can be reached directly at 415-868-5345.

NFA Takes Regulatory Aim at Spot Commodities Markets

Asks Congress to Increase Scope of Regulation for CFTC and NFA

Last week various employees of the CFTC and the NFA talked with members of Congress regarding certain aspects of the markets regulated by these groups.  Below is testimony from the Chief Operating Officer of the NFA, Daniel Discroll.  In the testimony, Mr. Discoll actually asks Congress to allow the CFTC and the NFA to regulate MORE markets – specifically the off exchange spot metals and energy markets.  While it is commendable that the NFA wants more power to help protect the investors, there are many reasons why this is not a good idea including:

  • The CFTC is underfunded already underfunded (see remarks by Commissioner Gary Gensley, “Specifically, the Commission [CFTC] needs more resources to hire and retain professional staff and develop and maintain technological capabilities as sophisticated as the markets we regulate.”)
  • In 2008 the CFTC was charged with promulgating proposed regulations to require forex managers to register with the CFTC.  This was supposed to be complete by late 2008 – we have yet to see any proposed regulations.  Are we likely to see any quick movements by the CFTC in the spot commodities markets?  Probably not.
  • The CFTC is likely to play a large role in reforming the regulatory framework for the OTC dervitives markets.  See our post on this issue.
  • The NFA, which must be commended for having staff who are generally cheerful and easy to deal with, is nonetheless a slow organization.  Managers who are registered with the CFTC and who have to interact with the NFA face long start-up times because of the overly onerous NFA review requirements.
  • Much of what the NFA does is ineffective – we probably see the most scams from CFTC/NFA regulated entities than we do from SEC/FINRA regulated entities.  Of note was another Ponzi scheme by a CFTC registered FCM, CPO and CTA (see press release).

I am not saying that the CFTC and the NFA should not have the power to regulate these markets.  I am saying that the CFTC and the NFA need to be pursuing the most egregious offenses and that Congress needs to ensure that the CFTC has the funding it needs in order to do its job propoerly.  If Congress does decide to grant jurisdiction over these markets to the CFTC then Congress should also make sure that a funding grant is included in any such rulemaking bill.




JUNE 4, 2009

My name is Daniel Driscoll, and I am Executive Vice President and Chief Operating Officer of National Futures Association. Thank you Chairman Harkin and members of the Committee for this opportunity to appear here today to present our views on closing a regulatory gap that allows fraudsters to sell unregulated OTC derivatives to retail customers.

Since 1982, NFA has been the industry-wide self-regulatory organization for the U.S. futures industry, and in 2002 it extended its regulatory programs to include retail over-the-counter forex contracts. NFA is first and foremost a customer protection organization, and we take our mission very seriously.

Congress is currently expending significant time and resources to deal with systemic risk and to create greater transparency in the OTC derivatives markets. Those are important economic issues, and we support Congress’ efforts to address them. Understandably, most of the debate centers around instruments offered to and traded by large, sophisticated institutions. However, there is a burgeoning OTC derivatives market aimed at unsophisticated retail customers, who are being victimized in a completely unregulated environment.

For years, retail customers that invested in futures had all of the regulatory protections of the Commodity Exchange Act. Their trades were executed on transparent exchanges and cleared by centralized clearing organizations, their brokers had to meet the fitness standards set forth in the Act, and their brokers were regulated by the CFTC and NFA. Today, for too many customers, none of those protections apply. A number of bad court decisions have created loopholes a mile wide, and retail customers are on their own in unregulated, non-transparent OTC futures-type markets.

The main problem stems from a Seventh Circuit Court of Appeals decision in a forex fraud case brought by the CFTC. In the Zelener case, the District court found that retail customers had, in fact, been defrauded but that the CFTC had no jurisdiction because the contracts at issue were not futures, and the Seventh Circuit affirmed that decision. The “rolling spot” contracts in Zelener were marketed to retail customers for purposes of speculation; they were sold on margin; they were routinely rolled over and over and held for long periods of time; and they were regularly offset so that delivery rarely, if ever, occurred. In Zelener, though, the Seventh Circuit ignored these characteristics and based its decision on the terms of the written contract between the dealer and its customers. Because the written contract in Zelener did not include a guaranteed right of offset, the Seventh Circuit ruled that the contracts at issue were not futures. As a result, the CFTC was unable to stop the fraud.

Zelener created the distinct possibility that, through clever draftsmanship, completely unregulated firms and individuals could sell retail customers forex contracts that looked like futures, acted like futures, and were sold like futures and could do so outside the CFTC’s jurisdiction. For a short period of time, Zelener was just a single case addressing this issue. Since 2004, however, various Courts have continued to follow the Seventh Circuit’s approach in Zelener, which caused the CFTC to lose enforcement cases relating to forex fraud.

A year ago, Congress closed the loophole for forex contracts. Unfortunately, the rationale of the Zelener decision is not limited to foreign currency products. Customers trading other commodities-such as gold and silver-are still stuck in an unregulated mine field. It’s time to restore regulatory protections to all retail customers.

Back in 2007, NFA predicted that if Congress plugged the Zelener loophole for forex but left it open for other products, the fraudsters would simply move to Zelener-type contracts in other commodities. That’s just what has happened. We cannot give you exact numbers, of course, because these firms are not registered. Nobody knows how widespread the fraud is, but we are aware of dozens of firms that offer Zelener contracts in metals or energy. Recently, we received a call from a man who had lost over $600,000, substantially all of his savings, investing with one of these firms. We have seen a sharp increase in customer complaints and mounting customer losses involving these products since Congress closed the loophole for forex.

NFA and the exchanges have previously proposed a fix that would close the Zelener loophole for these non-forex products. Our proposal codifies the approach the Ninth Circuit took in CFTC v. Co-Petro, which was the accepted and workable state of the law until Zelener. In particular, our approach would create a statutory presumption that leveraged or margined transactions offered to retail customers are futures contracts unless delivery is made within seven days or the retail customer has a commercial use for the commodity. This presumption is flexible and could be overcome by showing that delivery actually occurred or that the transactions were not primarily marketed to retail customers or were not marketed to those customers as a way to speculate on price movements in the underlying commodity.

This statutory presumption would not affect the interbank currency market dominated by institutional players, nor would it affect regulated instruments like securities and banking products. It would also not apply to those retail forex contracts that are already covered (or exempt) under Section 2(c). It would, however, effectively prohibit leveraged non-forex OTC contracts with retail customers when those contracts are used for price speculation and do not result in delivery.

I should note that NFA’s proposal does not invalidate the 1985 interpretive letter issued by the CFTC’s Office of General Counsel, which Monex International and similar entities rely on when selling gold and silver to their customers. That letter responded to a factual situation where the dealer purchased the physical metals from an unaffiliated bank for the full purchase price and left the metals in the bank’s vault. The dealer then turned around and sold the gold or silver to a customer, who financed the purchase by borrowing money from the bank. Within two to seven days the dealer received the full purchase price and the customer received title to the metals. In these circumstances the metals were actually delivered within seven days, so the transactions would not be futures contracts under NFA’s proposal.

In conclusion, while NFA supports Congress’ efforts to deal with systemic risk and create greater transparency in the OTC markets, Congress should not lose sight of the very real threat to retail customers participating in another segment of these markets. This Committee can play a leading role in protecting customers from the unregulated boiler rooms that are currently taking advantage of the Zelener loophole for metals and energy products. We look forward to further reviewing our proposal with Committee members and staff and working with you in this important endeavor.

CFTC Proposes Reforms to Over-The-Counter Derivates Trading Regulation

Statement of Gary Gensler Chairman, Commodity Futures Trading Commission

On June 4th, 2009, Gary Gensler, Chairman of the Commodity Futures Trading Commission, held a hearing before the Senate Committee on Agriculture, Nutrition and Forestry to address the importance of enacting broad reforms to regulate over-the-counter (OTC) derivates.  Gensler emphasized that such reforms must comprehensively regulate both derivative dealers and the markets in which derivatives trade in order to build and restore confidence in our financial regulatory system.  Below is a summary of the reforms proposed in CFTC hearing:

I.  Comprehensive Regulatory Framework

A comprehensive regulatory framework governing OTC derivative dealers and OTC derivative markets should apply to all dealers and all derivatives, no matter what type of derivative is traded or marketed. It should include interest rate swaps, currency swaps, commodity swaps, credit default swaps, and equity swaps. Further, it should apply to the dealers and derivatives no matter what type of swaps or other derivatives may be invented in the future. This framework should apply regardless of whether the derivatives are standardized or customized.

A new regulatory framework for OTC derivatives markets should be designed to achieve four key objectives:

1.  Lower systemic risks

  • Setting capital requirements for derivative dealers;
  • Creating initial margin requirements for derivative dealers (whether dealing in standardized or customized swaps);
  • Requiring centralized clearing of standardized swaps; and
  • Requiring business conduct standards for dealers.

2.  Promote the transparency and efficiency of markets

  • Requiring that all OTC transactions, both standardized and customized, be reported to a regulated trade repository or central clearinghouses;
  • Requiring clearinghouses and trade repositories to make aggregate data on open positions and trading volumes available to the public;
  • Requiring clearinghouses and trade repositories to make data on any individual counterparty’s trades and positions available on a confidential basis to the CFTC and other regulators;
  • Requiring centralized clearing of standardized swaps;
  • Moving standardized products onto regulated exchanges and regulated, transparent trade execution systems;
  • Requiring the timely reporting of trades and prompt dissemination of prices and other trade information

3.  Promote market integrity by preventing fraud, manipulation, and other market abuses, and by setting position limits

  • Providing CFTC with clear, unimpeded authority to impose reporting requirements and to prevent fraud, manipulation and other types of market abuses;
  • Providing CFTC with authority to set position limits, including aggregate position limits;
  • Moving standardized products onto regulated exchanges and regulated, transparent trade execution systems;
  • Requiring business conduct standards for dealers.

4.  Protect the public from improper marketing practices.

  • Business conduct standards applied to derivatives dealers regardless of the type of instrument involved;
  • Amending the limitations on participating in the OTC derivatives market in current law to tighten them or to impose additional disclosure requirements, or standards of care (e.g. suitability or know your customer requirements) with respect to marketing of derivatives to institutions that infrequently trade in derivatives, such as small municipalities

To best achieve these objectives, Gensler  recommends implementing two complementary regulatory regimes: one focused on the dealers that make the markets in derivatives and one focused on the markets themselves – including regulated exchanges, electronic trading systems and clearing houses.

II.  Regulating Derivatives Dealers

The current financial crisis has taught us that the derivatives trading activities of a single firm can threaten the entire financial system and that all such firms should be subject to robust Federal regulation. Specifically, all derivative dealers should be subject to capital requirements, initial margining requirements, business conduct rules and reporting and recordkeeping requirements. Standards that already apply to some dealers, such as banking entities, should be strengthened and made consistent, regardless of the legal entity where the trading takes place.

 II (a). Capital and Margin Requirements

 The Congress should explicitly require regulators to promulgate capital requirements for all  derivatives dealers. Imposing prudent and conservative capital requirements, and initial margin  requirements, on all transactions by these dealers will help prevent the types of systemic risks  that AIG created. No longer would derivatives dealers or counterparties be able to amass large  or highly leveraged risks outside the oversight and prudential safeguards of regulators.

 II (b).  Business conduct and Transparency Requirements

 Business conduct standards should include measures to both protect the integrity of the market  and lower the risk (both counterparty and operating) from OTC derivatives transactions.

 To promote market integrity, the business conduct standards should:

  • Include prohibitions on fraud, manipulation and other abusive practices
  • Require adherence to position limits established by the CFTC on OTC derivatives that perform or affect a significant price discovery function with respect to regulated markets
  • Ensure the timely and accurate confirmation, processing, netting, documentation, and valuation of all transactions.
  • Require derivatives dealers to be subject to recordkeeping and reporting requirements for all of their OTC derivatives positions and transactions, including retaining a complete audit trail and mandated reporting of any trades that are not centrally cleared to a regulated trade repository
  • Provide transparency of the entire OTC derivates market by making this information available to all relevant federal regulators and making aggregated information on positions and trades available to the public
  • Provide clear authority for regulating and setting standards for trade repositories to ensure that the information recorded meets regulatory needs and the repositories have strong business conduct practices

III.  Regulating Derivates Markets

All derivatives that can be moved into central clearing should be required to be cleared through regulated central clearing houses and brought onto regulated exchanges or regulated transparent electronic trading systems.  Requiring clearing and trading on exchanges or through regulated electronic trading systems will promote transparency and market integrity and lower systemic risks.  To fully achieve these objectives, both of these complementary regimes must be enacted – Regulating both the traders and the trades will ensure that we cover both the actors and the actions that may create significant risks. To regulate both derivates and the market itself, the following areas need to be regulated:

a) Central clearing
b) Exchange-trading
c) Position limits
d) Standardized and customized derivates
e) Authority

III (a).  Central Clearing

Central clearing should help reduce systemic risks in addition to the benefits derived from  comprehensive regulation of derivatives dealers. Clearing reduces risks by facilitating the netting  of transactions and by mutualizing credit risks. Currently, most of the contracts entered into in  the OTC derivatives market are not cleared, and remain as bilateral contracts between individual  buyers and sellers. In contrast, when a contract between a buyer and seller is submitted to a  clearinghouse for clearing, the contract is “novated” to the clearinghouse. This means that the  clearinghouse is substituted as the counterparty to the contract and then stands between the  buyer and the seller.

Clearinghouses then guarantee the performance of each trade that is submitted for clearing.  Clearinghouses use a variety of risk management practices to assure the fulfillment of this  guarantee function. Foremost, derivatives clearinghouses would lower risk through the daily  discipline of marking to market the value of each transaction.

The regulations applicable to clearing should require central clearinghouses to:

  • Establish and maintain robust margin standards and other necessary risk controls and measures
  • Have transparent governance arrangements that incorporate a broad range of viewpoints from members and other market participants
  • Have fair and open access criteria that allow any firm that meets objective, prudent standards to participate regardless of whether it is a dealer or a firm
  • Implement rules that allow indirect participation in central clearing

III (b).  Exchange-Trading

Market transparency and efficiency would be further improved by moving the standardized part  of the OTC markets onto regulated exchanges and regulated transparent electronic trading  systems.  Furthermore, a system for the timely reporting of trades and prompt dissemination of  prices and other trade information to the public should be required. Both regulated exchanges  and regulated transparent trading systems should allow market participants to see all of the bids  and offers. A complete audit trail of all transactions on the exchanges or trade execution   systems should be available to the regulators. Through a trade reporting system there should be  timely public posting of the price, volume and key terms of completed transactions.

III (c).  Position Limits

Position limits must be applied consistently all markets, across all trading platforms, and  exemptions to them must be limited and well defined.  The CFTC should have the ability to  impose position limits, including aggregate limits, on all  persons trading OTC derivatives that  perform or affect a significant price discovery function with respect to regulated markets. Such  position limit authority should clearly empower the CFTC to establish aggregate position limits  across markets in order to ensure that traders are not able to avoid position limits in a market  by moving to a related exchange or market. Gensler anticipates that this new authority will  better enable the CFTC to protect the integrity of the price discovery process in the futures  markets and protect the public against fraud, manipulation and other abuses. 

III (d).  Standardized and Customized Derivatives

It is important that tailored or customized swaps that are not able to be cleared or traded on an  exchange be sufficiently regulated. Regulations should also ensure that customized derivatives  are not used solely as a means to avoid the clearing requirement. Genlser proposes that the  CFTC accomplish this in two ways:

  1. Regulators should be given full authority to prevent fraud, manipulation and other abuses and to impose recordkeeping and transparency requirements with respect to the trading of all swaps, including customized swaps.
  2. Ensure that dealers and traders cannot change just a few minor terms of a standardized swap to avoid clearing and the added transparency of exchanges and electronic trading systems

Additional criteria for consideration in determining whether a contract should be considered to  be a standardized swap contract should include:

  • The volume of transactions in the contract
  • The similarity of the terms in the contract to terms in standardized contracts
  • Whether any differences in terms from a standardized contract are of economic significance
  • The extent to which any of the terms in the contract, including price, are disseminated to third parties

III (e).  Authority

Lastly, to achieve the goals described above, the Commodity Exchange Act should be amended  to provide the CFTC with positive new authority to regulate OTC derivatives. The term “OTC  derivative” should be defined, and the CFTC should be given clear authority over all such  instruments. To the extent that specific types of OTC derivatives might best be regulated by  other regulatory agencies, care must be taken to avoid unnecessary duplication and overlap.
 As new laws and regulations are enacted, the CFTC should be careful not to call into question  the enforceability of existing OTC derivatives contracts. New legislation and regulations should  not provide excuses for traders to avoid performance under pre-existing, valid agreements or to  nullify pre-existing contractual obligations.

IV.  Conclusion

It is clear that we need the same type of comprehensive regulatory reform today. Today’s regulatory reform package should cover all types of OTC derivatives dealers and markets. It should provide the CFTC and other federal agencies with full authority regarding OTC derivatives to lower risk; promote transparency, efficiency, and market integrity and to protect the American public.

Today’s complex financial markets are global and irreversibly interlinked. We must work with our partners in regulating markets around the world to promote consistent rigor in enforcing standards that we demand of our markets to prevent regulatory arbitrage.