Reuters: Regulatory News: Public prices key to reducing derivatives risk-Gensler

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Public prices key to reducing derivatives risk-Gensler May 2nd 2012, 17:00 CHICAGO | Wed May 2, 2012 1:00pm EDT CHICAGO May 2 (Reuters) - The Commodity Futures Trading Commission is committed to enforcing rules that ensure public price transparency in the $700 trillion privately traded derivatives markets, as the disclosures are key to reducing the risks the market poses to the economy, CFTC Chairman Gary Gensler said on Wednesday. The requirement that derivatives prices be reported publicly before and after trades are made has been one of the most hotly contested derivatives rules, with many large banks, some fund managers and the trade group International Swaps and Derivatives Association opposing the rule. Banks argue that disclosing prices before trades are made would allow others to trade ahead of an investor seeking to enter into a position, which would make it more difficult to execute a trade, and harm market liquidity. Bank critics counter that banks oppose the rule as the lack of transparency allows them to benefit from higher margins charged on trades. Public disclosure of trade pricing is key to reducing trade costs, increasing market liquidity and bringing additional investors to the market, Gensler said, calling derivatives "the largest dark pool in our financial markets." He was speaking ISDA's annual meeting in Chicago. The price transparency is also key to reducing the risk of failure of a central clearinghouse, which would cause large losses across the economy. The clearing houses need transparent prices and liquid markets to properly manage the risks of the contracts they clear and guarantee, Gensler said. Gensler added that the CFTC is committed to defending rules including position limits in oil markets that are designed to reduce excessive speculation in a specific market. The Securities Industry and Financial Markets Association and ISDA filed a legal challenge to the rule in December. "The CFTC is vigorously defending this rule because it's the law and because it promotes market integrity," Gensler said. Link this Share this Digg this Email Reprints

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