Speech by SEC Chairman:
Statement at Treasury Department Press Briefing on OTC Derivatives
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
May 13, 2009
Thank you, Secretary Geithner.
As many of you know, we are all working hard to effectively reform our financial regulatory landscape. And, in the process, better police the financial markets and restore investor confidence.
Already, at the SEC, we have taken steps to streamline our enforcement procedures, hire new skill sets, empower our enforcement attorneys and oversight staff, and upgrade our technological capabilities to better spot trends and detect fraud. We also have initiated an active rulemaking agenda to ensure that our securities laws are keeping pace with new financial products and that we are responding to the financial crisis.
But no matter how great our capabilities, no regulator can effectively protect investors from unregulated financial instruments.
There is widespread agreement that OTC derivatives, particularly credit default swaps, may have contributed greatly to the financial mess we're cleaning up today. Unfortunately, the lack of clear regulatory authority over this vast market has hindered the ability of regulators to fully understand how this market functions or to ensure that basic standards of fairness are followed.
There is agreement now that this needs to change.
Today, current federal statutes significantly restrict the ability of financial regulators to obtain reporting or record-keeping in the OTC derivatives market. Yet these are the very types of tools that any regulator would need to identify suspicious trading patterns or better understand systemic risks.
In addition, central clearing for credit default swaps and other OTC derivatives would bring to this market much-needed transparency. Such transparency will enable regulators to better monitor transactions that are effected through the use of a central counterparty. Importantly, central clearing would also mitigate the systemic risks created by OTC derivatives.
Mitigating the systemic risks created by OTC derivatives has obviously been a central goal of these efforts. We have been very supportive of the efforts to improve the risk management practices of OTC derivatives market participants. Further, we have supported the efforts to move credit default swaps — an important segment of the OTC derivatives market — onto a central clearing platform. While more work needs to be done to provide facilities for clearing of standardized OTC derivatives, the clearing of CDS is an important step.
I look forward to continuing to work closely with the other financial regulators to address the systemic risk, market integrity, and investor protection concerns with OTC derivatives.