Business | Markets
Call for greater regulation of derivatives
Banks dealing in swaps must be subject to rigorous requirements, says chief of US Securities and Exchange Commission
- AP
- Published: 00:00 March 15, 2010
Washington: The government's top securities regulator called on Thursday for Congress to impose new oversight on financial derivatives, warning that allowing risky instruments like credit default swaps to continue unfettered could bring further economic damage.
The chairman of the Securities and Exchange Commission, Mary Schapiro, said banks that deal in the swaps must be subject to rigorous requirements for holding capital. They must also conduct their business in accordance with rules and their price information must be transparent, she said.
Schapiro made the statement as credit default swaps, a form of insurance against loan defaults, have come under heightened scrutiny in the US and Europe.
The leaders of France, Germany and Greece have called for a clampdown on trading in the swaps, which they blame for worsening Greece's debt crisis and undermining the European currency in recent weeks. A nationwide strike in Greece to protest the cash-strapped government's austerity measures the second strike in a week brought the country to a virtual standstill on Thursday.
Another US regulator, Commodity Futures Trading Commission Chairman Gary Gensler, said Wall Street banks are seeking exemptions to the proposed new regulations for derivatives that could shield more than half the trades that should be subject to disclosure.
Gensler criticised Wall Street's stance on proposed oversight for the shadowy $600 trillion (Dh2,200 trillion) market for derivatives blamed for hastening the 2008 financial crisis.
Credit default swaps account for an estimated $60 trillion of the worldwide derivatives market.
Gensler told a financial industry gathering in Florida that Wall Street has not been "enthusiastic" about the proposed new regulations now before Congress.
Schapiro didn't specifically address the Greek situation or the call by European leaders for restraints on swaps trading, in her response to a question from journalists. On Tuesday, the European Commission threatened to ban speculative trading of credit default swaps by investors who don't actually own a country's underlying debt — known as "naked" trades.
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