Thursday, June 4, 2009

Former Goldman Man Wants CFTC to Regulate Derivatives

A Commodity Futures Trading Commission proposal seeks to ensure privately negotiated contracts are regulated with the same oversight as trades on an open exchange, but wants the derivative transactions to remain between private parties and not on an exchange.

Behind the initiative is CFTC Chairman Gary Gensler, an 18 year Goldman Sachs man, the smartest student in his class at Wharton, and the only student Goldman wanted to talk to the year he graduated from Wharton.

“All derivative dealers should be subject to capital requirements, initial margining requirements, business conduct rules and reporting and record keeping requirements,” Gensler said in prepared remarks before told the Senate Agriculture Committee today . “Standards that already apply to some dealers, such as” banks, should be strengthened, he said.

The Gensler proposal is in contrast to free markets on one end and legislation pushed by Senate Agriculture Committee Chairman Tom Harkin that would move all of the $684 trillion over-the-counter derivatives market to regulated exchanges, on the other end.

According to Bloomberg, Gensler cited contracts for physical items being delivered at certain dates, including jet fuel, or municipalities that want contracts of unusual lengths.

“It’s so specific, even confidential, that there’s no liquidity,” Gensler responded. “That would still be regulated” while not being on an exchange.

Confidential regulation, sounds like something Goldman could work with.

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