CME Group, the world’s largest and most diverse derivatives exchange, has issued the following statement regarding U.S. House of Representatives Bill 977:
CME Group commends the efforts of the House Agriculture Committee to ensure that the regulated exchange-traded futures and options markets overseen by the Commodity Futures Trading Commission (CFTC) and the exempt over-the-counter (OTC) derivative markets serve the best interests of the investing public. While HR 977, the “Derivatives Markets Transparency and Accountability Act of 2009,” includes valuable measures to further enhance both transparency and adequate staffing and information resources for the CFTC, CME Group does not support the bill for the following reasons:
The legislation requires the imposition of hard position limits in already-regulated commodity and energy futures markets that will significantly impair liquidity necessary for commercial hedgers and market professionals such as farmers, energy producers and airline and transportation companies seeking to legitimately transfer business risks.
The bill is directly antithetical to its own purposes in that it will divert trading in highly regulated commodity and energy futures markets to less regulated OTC and foreign markets accessible to U.S. investors but beyond the reach or jurisdiction of the U.S. government.
The legislation imposes artificial constraints on the definition of hedge transactions that will impair OTC dealers from facilitating more complex hedging transactions and hedging their own net exposures from their swap dealing activities in regulated futures markets with the consequential result of further impairing hedging and risk transfer opportunities for U.S. Investors.
And finally, the bill effectively requires the mandatory clearing of virtually all OTC derivative contracts and will therefore drive a significant portion of OTC business offshore, lessening the regulatory effectiveness of the CFTC.
We look forward to working with lawmakers to continue to discuss proposals to ensure a sound regulatory financial system.