July 15, 2010
More than two years ago, as the economy had started seriously sputtering, some forward-thinking Members of Congress began work on financial regulatory reform. A bill to revamp the futures industry even had enough votes to pass the U.S. House of Representatives, only to be defeated after some Members actually switched their votes in the final seconds. Interestingly, many forget that these efforts at reform were taking place months before Bush Administration officials came to Congress with an urgent plea for hundreds of billions of dollars to bail out failing financial institutions. Today, after all this time, we may see a final vote that would pass what many call the most sweeping financial reform in 80 years—since the Great Depression. In fact, there has never been legislation like this. Eighty years ago, U.S. financial markets were minuscule compared to today. To put it mildly, this is a very big deal. Our country, and indeed the economy, needs this legislation.
The financial market reform bill will give regulators the transparency, tools and teeth we need to protect consumers and stave off another financial meltdown. The centerpiece of the derivatives section of the legislation, clearly, is the requirement to bring over-the-counter trades (dark markets if you will) into regulated clearinghouses and exchanges. In addition, regulators will have oversight and enforcement tools needed to ensure the integrity of these markets.
I’m also pleased that the bill includes a “push-out” provision for swaps activity in banks, as well as a version of the so-called Volcker Rule, precluding big banks from the kind of proprietary swaps trading that contributed to the mortgage crisis. In addition, the bill provides the necessary definitional guidelines to bring market participants under the regulatory umbrella.
I am heartened that strong, mandatory, aggregate position limit provisions are included in the legislation. This authority is essential in order for regulators to be able to protect against excessive speculation and manipulation.
The legislation also provides clear manipulation authority and disruptive trading practice authority for the CFTC so that we can go after trading that negatively affects markets. The bill will also advance CFTC/SEC harmonization efforts, particularly in the area of cross-jurisdictional product approvals.
In addition, I strongly support provisions in the legislation to create a consumer protection entity. The American consumer deserves to have the protections that would be afforded by the oversight of a federal government office devoted solely to those issues.
I also support the ban on trading of box office futures—while this type of issue is perhaps more appropriately addressed at the agency level, I do not believe these are the kinds of transactions that, as currently designed, were intended to be regulated as risk management or price discovery contracts under our Act.
Carrying out the many provisions of this 2,000 page bill will be an unprecedented, historic and make no mistake about it—monumental—challenge. That said, we will get it done. That is our job.
This legislation, personally pursued by the President and many others, will help to make our US financial markets more efficient and effective. It will do more than at any time in history to prevent and deter fraud, abuse and manipulation. It will be good for markets, for our nation’s economy—the economic engine of our democracy—and importantly, it will be good for consumers.
Last Updated: July 15, 2010