Good evening. I thank Professor Joseph Stiglitz and Columbia University’s Committee on Global Thought for inviting me here today. I am honored to be on a panel with Professor Stiglitz, former Securities and Exchange Commission Chairman Arthur Levitt, and Phil Angelides, who is currently heading up the Financial Crisis Inquiry Commission.
The focus of this panel spans numerous issues related to financial reform, but, as the head of the federal agency that oversees the regulated derivatives markets – called futures markets – I am going to swim in my lane tonight. I will focus on why we must bring comprehensive regulatory reform to the unregulated derivatives markets, called the over-the-counter (OTC) derivatives markets. I will do this in the context of some key reasons that have been suggested over the years for not regulating these markets.
Derivatives have been around in the U. S. since the Civil War. They were first used by grain merchants and farmers to hedge against future changes in prices in corn, wheat and soybeans. They were later used to hedge the price risk of energy products, metals and financial returns. These derivatives – traded on exchanges – are called futures.
A new type of derivatives, called over-the-counter derivatives or swaps started in the 1980s. In contrast to the regulated futures marketplace, OTC derivatives generally are not traded on centralized exchanges and have thus far been largely unregulated.
Derivatives markets – regulated futures and unregulated OTC derivatives – form an important part of our financial markets. Along with securities markets, they function to help businesses and the public invest their savings, raise capital, borrow money and manage risk.
Comprehensive federal regulation was brought to all of the securities and futures markets after the last great financial crisis in the 1930s. Thus, the securities and futures markets have benefited from regulation that ensures a level playing field for market
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