As rival bills to clean up over the counter derivatives worm their way through Congress, the debate has become clogged by vague claims. Philip McBride Johnson cuts through the blather to get to the reality.
In every major financial centre on this planet, intense
study is occurring on how to avoid a recurrence of both the
surprise and the depth of the recent financial crisis.
One US senator estimated in November that over-the-counter
derivatives had ballooned to $600tr in notional value since the
adoption of the Commodity Futures Modernization Act (CFMA) of
2000. Whether that is true or not, the problem is anything but
Numerous pieces of legislation have been introduced in the
US Congress on this subject by the Obama administration and
various members of the House of Representatives and Senate.
Three thorny issues that surround these bills are: whether
tighter regulation would in fact be helpful for OTC
derivatives; whether end users should be exempt from some of
the controls that may be imposed on dealers and other big
participants; and whether it is wise to try and distinguish
between standardised and bespoke derivatives, and if so, who
should do the deciding.
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