All OTC Derivatives to be Cleared and/or Margined. US Treasury Proposal
Thu 23 Jul 2009
Please click here to read the 10 July 2009 testimony of US Treasury Secretary Timothy F. Geithner before the House Financial Services and Agriculture Committees Joint Hearing on Regulation of OTC Derivatives.
Summary of US Treasury proposals regarding all OTC derivatives (including commodities):
1. Require all standardised derivative contracts be cleared through well-regulated central counterparties and executed either on regulated exchanges or regulated electronic trade execution systems.
2. US agencies to work with international counterparts to help ensure that our strict and comprehensive regulatory regime for OTC derivatives is matched by a similarly effective regime in other countries.
3. Through capital requirements and other measures, encourage substantially greater use of standardised OTC derivatives and thereby facilitate substantial migration of OTC derivatives onto central clearinghouses and exchanges.
4. Raise capital and margin requirements for counterparties to all customised and non-centrally cleared OTC derivatives.
5. Given their higher levels of risk, capital requirements for derivative contracts that are not centrally cleared must be set substantially above those for contracts that are centrally cleared.
6. Propose a broad definition of "standardised" OTC derivatives that will be capable of evolving with the markets and will be designed to be difficult to evade.
7. Require that regulators carefully police any attempts by market participants to use spurious customisation to avoid central clearing and exchanges.
8. Propose steps to make the OTC derivative markets fully transparent.
In Australia, the SFE’s Exchange for Physical (EFP) mechanism is used by counterparties in the OTC electricity market to switch OTC positions into electricity futures (and exchange traded options) positions. There are over 2,300 standardised electricity products available on the SFE.