Gary Gensler, chairman of the US Commodity Futures Trading Commission, has warned lawmakers not to leave too many loopholes in planned legislation on over the counter derivatives.

Referring to the mandatory clearing of OTC trades, he said he did not want exemptions that would unintentionally exempt hedge funds, financial firms or other investment funds.

Gensler said: “Any clearing exemption for end users should be very narrowly defined to only include non-financial entities that use swaps incidental to their business to hedge actual commercial risks.”

The CFTC chairman testified on October 7 before the House of Representatives’ Committee on Financial Services, which released a discussion draft of the OTC Derivative Markets Act of 2009.

He voiced concerns about how this widened the definition of “major swap participant” to include anyone using a swap for risk management. “I am concerned that a great number of swaps could be characterised as risk management, or hedging, swaps,” he said.

Gensler pointed out: “The discussion draft shifts from the presumption that all standardised derivatives must be cleared to one where products would be cleared only if required by market regulators.”