If President Obama wants to end the kind of complex trading that nearly brought the U.S. financial system to its knees, a more robust plan is needed to control them than the one his administration has put forth, the nation's top securities regulator told Congress on Tuesday.
A White House plan to regulate the $450 trillion dollar derivatives market "would go a long way toward bringing over-the-counter derivatives under a comprehensive framework," Securities and Exchange Commission Chairwoman Mary Schapiro told a congressional panel. But she added that swaps needed to regulated in the same way their underlying assets are.
A proposal by the Treasury Department would divide responsibility among the SEC and the Commodity Futures Trading Commission (CFTC) for policing those swaps tied to securities and give the CFTC regulatory authority over other over-the-counter derivatives, Schapiro told the House Agriculture Committee.
The SEC chief told lawmakers she is concerned that the tools laid out in the plan to police such swaps don't go far enough. "Treasury's proposal would retain the SEC's anti-fraud authority over all securities-related swaps, but unfortunately does not currently provide the tools needed to adequately police all these swaps," she said.
Congress should consider modifying Treasury's proposal "so that all securities-related OTC derivatives are regulated more like securities, and commodity and other non-securities-related OTC derivatives are regulated more like futures," Schapiro said.
Further, she said less sophisticated investors remain at risk unless stricter rules are adopted to regulate business practices.
Schapiro testified before the committee Tuesday along with Gary Gensler, who heads the CFTC. Both agencies are poised to receive new powers from Congress to regulate over-the-counter products.
Both agency heads have favored the Obama administration's approach, which calls for the regulation of derivative dealers and the trading of derivative products.
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