Ewing Cautions Against Haste in Regulation of Over-the-Counter (OTC) Derivatives, "The Administration Needs to Show Leadership," Says Ewing

Jun 10, 1998

WASHINGTON D.C. — At a hearing today of the House Agriculture Subcommittee on Risk Management and Specialty Crops, Chairman Thomas Ewing (R-IL) warned of the dangers of reacting haphazardly to concerns by increasing regulation of the OTC market, emphasizing that U.S. firms must remain competitive in the international derivatives business.

The Futures Trading Practices Act of 1992 gave the Commodity Futures Trading Commission (CFTC) the authority to exempt certain off-exchange traded instruments from the Commodity Exchange Act (CEA). However, it was recognized at that time and in 1993 that other regulators, such as the Treasury, the Federal Reserve Board, and the Securities and Exchange Commission (SEC) would have a continued interest in monitoring the OTC market. The purpose of today's hearing was to examine the overall regulation of the OTC derivatives market to determine whether future congressional action will be necessary.

"Caution must be taken in discussing government regulation as if it were the ultimate solution to issues within the derivatives market or any market for that matter. Regulation is not always the solution. However, government oversight particularly with respect to antifraud and anti-manipulation measures is certainly appropriate," Ewing said.

On December 30, 1997, the SEC released a proposed rule commonly known as "Broker-Dealer Lite." The SEC intended this proposal to allow securities firms to establish dealer affiliates that can more effectively compete against banks and foreign dealers in global OTC markets. In addition, on May 7, 1998, the CFTC issued a concept release intended to gather information and views on the OTC market to use in determining whether the current regulatory approach should continue or be modified.

Finally, the Federal Reserve Board, Treasury, and SEC have submitted draft legislative language which purports to require the President's Working Group to perform a one-year study on the OTC market, authorize equity swaps, and place a moratorium on CFTC rulemaking and its ability to bring enforcement actions until CFTC reauthorization.

"I commend the SEC and the CFTC for their involvement in the issue. The SEC clearly understands the need to allow U.S. firms to effectively compete for derivative business that has moved offshore. This was a prevailing theme through last year's House and Senate debate on Commodity Exchange Act Reform with respect to U.S. futures exchanges," Ewing said.

"As Congress is the appropriate venue to address these issues, our main goal is to ensure legal certainty and stability in the OTC markets until we complete the CFTC reauthorization process. Enacting unnecessary regulations will not further this goal," Ewing said following the hearing.

Ewing represents Illinois' Fifteenth Congressional District -- which includes eleven counties in East-Central Illinois — in the U.S. House of Representatives.