Obama Rallies Wall St. for Tighter Financial Regulation
Posted on Fri, Apr 23, 2010 @ 03:55 PM
President Barack Obama spoke yesterday at the Great Hall at Cooper Union college in Manhattan about the need to pass tighter financial regulation reform in order to prevent a future economic recession similar to the one currently gripping global financial markets.
This came only a day after the 13-8 vote on Wednesday by the U.S. Senate Committee on Agriculture, Nutrition and Forestry, to approve Senator Blanche Lincoln's proposed "Wall Street Transparency and Accountability Act of 2010", which could be a sign of the direction future regulation may take. The bill requires that OTC derivatives trades be cleared through central clearing houses and reported in as real-time as technologically possible after execution, which is intended to create transparency in the OTC derivatives markets to level the playing field for all participants and to mitigate risk.
While increased transparency and stronger risk management are preferable to the more opaque marketplace we've seen in the past, it's critical that any passed reform doesn't do anything reduce liquidity, increase costs or stifle competition.
Although President Obama's speech at times took an accusatory tone toward Wall Street, he did address the need for a more transparent market for trading derivatives. Legislation sponsored by Senate Banking Committee Chairman Christopher Dodd could come to the Senate floor as early as next week. Any pending OTC derivatives regulation would be weaved into a larger, broader financial reform bill.
President Obama's speech also coincided with the International Swaps and Derivatives Association's (ISDA) 24th Annual General Meeting held in San Francisco, where top-level industry members are currently discussing many of the same issues. Many of the panelists expressed concerns that the inclusion of mandatory exchange based trading could have unintended consequence such as increased cost and reduced liquidity. Alternatively, they felt it was important to preserve the integrity of the OTC market which could include electronic trading platforms such as swap execution facilities (SEF). Legislators need to take note of these concerns as Congress nears the passing of financial regulatory overhaul. With the President pushing to get legislation signed before the end of the summer, in such a fast-moving environment, it's crucial that Washington work with Wall Street to ensure they get OTC derivatives reform right.
