December 9, 2009
Thank you Commissioner Sommers for organizing this meeting. I appreciate the willingness of all the participants to join us today to share their views and knowledge with the Commission regarding the state of global Over-The-Counter (OTC) markets and the opportunities for regulatory reform.
In response to the financial crisis, both the United States and the European Union regulators have recommended significant reforms to the OTC markets. Both proposals seek to better manage risk, increase transparency through improved trade reporting, and expand the use of clearing to minimize counterparty trading exposure and reduce systemic risk.
This meeting is timely and will provide the Commission the opportunity to compare the U.S. and E.U. proposals to regulate these increasingly global markets.
According to the Bank of International Settlements, the global OTC market size is estimated at $600 trillion. Over 90 percent of the Fortune 500 companies use these products in the course of business to hedge risk and manage their global commercial activities ranging from interest rates, foreign exchange, commodities and the CDS market.
As regulators, we must be cognizant that the U.S. is not the center of all trading and markets. In fact, nearly 80% of all OTC trades, by value, are executed in markets outside the U.S.
• Interest rates make up $420 trillion of the $600 trillion OTC markets with over 74% of all trades done overseas.
• Foreign exchange OTC trades are worth $50 trillion with roughly 85% of trades executed outside U.S. markets.
We must ensure our cross border rules and regulations do not offer opportunities for regulatory arbitrage or undermine U.S. competitiveness. I hope to see a regulatory framework put it place that will establish clear market rules for years to come and enable these markets to serve as a cost-effective mechanism in managing commercial risk. The rules we put in place today must also expand our capability to identify and manage systemic risk for the future.
I am pleased that we have several experts to provide their views on both the U.S. and E.U. regulatory reforms and I look forward to their presentations.
Last Updated: June 10, 2010