07.15.10

Historic Financial Reform Package Includes Cantwell-Backed Measures to Control Derivatives for First Time Ever

Cantwell votes 'aye' in key cloture vote, final passage; bill requires transparency, control over dark markets that brought down our economy

WASHINGTON, DC – Today, U.S. Senator Maria Cantwell (D-WA) hailed Senate passage of historic financial regulatory reform legislation because – for the first time – it requires oversight and transparency in the dark over-the-counter derivatives markets that did so much damage to the U.S. economy. Cantwell cast a key vote in a 60-38 roll-call that ended debate, then voted for final passage, which cleared by a vote of 60-39. The House approved the bill June 30th, so today’s vote sends the measure to President Obama for his signature. Just before the final vote, Cantwell spoke on the Senate floor, saying that for the first time ever, the previously dark, unregulated swap markets would now be regulated and brought into the light of day. Her full remarks follow:
 
“I thank the Chair (Senate Banking Committee Chairman Christopher Dodd, D-CT) for yielding time and I want to thank him for his diligence, particularly in the area of the derivatives market and the fact that this legislation will be the first time, the first time, the over-the-counter derivatives market in this country will be regulated. The fact that Congress made a mistake and said ‘hands off’ to derivatives in 2000, and then an $80 trillion market exploded into what is today a $600 trillion dollar dark market.  The Chairman has now made sure that for the first time, over-the- counter derivatives will be regulated.
 
“That means for the first time over-the-counter derivatives will have to be exchange traded, which means there will be transparency. 
 
“It’s the first time over-the-counter derivatives will have to be cleared, which means a third party will have to validate whether there is real money behind these transactions.
 
“And it is the first time the CFTC will be allowed to say that they will be able to enforce aggregate position limits across all exchanges, which means you can’t hide this dark market derivative money on some exchange that isn’t properly regulated or try to make the market across all exchanges. And it is the first time that things like the London Loophole will be closed so that you can’t have markets and exchanges that aren’t regulated.
 
“So, to the American people, to know that something as dangerous as credit default swaps brought down our economy, that now, for the first time, we will have regulation of these over-the-counter derivatives, I thank the Chairman for his efforts in that area.  A $600 trillion market, which is greater than 10 times the size of world GDP, is a danger to our economy if it is not regulated.
 
“Thank God we’re going to be regulating it for the first time. And I would encourage all my colleagues on the other side of the aisle who, at one point in time, said that these are too complicated to understand, understand that they brought down our economy, and understand that we are going to, for the first time, regulate over the counter derivatives.  
 
I thank the Chair for his leadership.”
 
Watch a video of Cantwell’s remarks.
 
Cantwell announced her support for the final version of the financial regulatory reform bill on July 1 because of tough new regulations of derivatives added in final House-Senate negotiations. Cantwell had opposed passage of the Senate version of the bill, citing loopholes in the derivatives title.  Throughout the debate, she tirelessly fought to require transparency in the $600 trillion derivatives market. Cantwell authored an amendment, included in House-Senate conference, to impose tough penalties for evading the clearing and exchange trading requirements for derivatives. Upon completion of the conference version of the bill, Cantwell received written assurance from Gary Gensler, chairman of the Commodity Futures Trading Commission, that the bill “explicitly requires that swap dealers, major swap participants and financial entities use a clearinghouse for standardized or ‘clearable’ derivatives transactions.” The bill includes a narrowly-crafted exemption that will allow only legitimate commercial end-users – farmers, airlines, and manufacturers – to continue to hedge business risks without being subject to the clearing and exchange trading requirements. Gensler agreed with Cantwell’s interpretation of the bill: that it imposes strong oversight over the vast majority of derivatives trading. Cantwell said she is disappointed the bill does not reinstate the Glass Steagall separation of commercial and investment banking but believes the bill’s unprecedented regulation of the derivatives market squarely addresses the underlying cause of the financial crisis. The full text of Gensler’s letter is available here.
 
For more information on Cantwell’s amendments to the bill, see a July 1 press release.
 
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