CMOC calls for legislative reform of derivatives markets

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The American Trucking Associations on Wednesday, May 5, announced its strong support for the Commodity Markets Oversight Coalition’s call for legislative reform of derivatives markets to strengthen oversight, transparency and stability, and limit the role of financial speculation in regulated, over-the-counter and offshore markets.

The coalition on Tuesday, May 4, sent a letter to Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) urging the senators to “enact responsible legislation that will protect legitimate commercial hedgers and consumers from excessive speculation and systemic risk, not create new loopholes for financial interests.” The coalition also voiced support for the “Wall Street Transparency and Accountability Act,” which was reported out of the Senate Agriculture Committee. CMOC applauded Sens. Blanche Lincoln (D-Ark.) and Chris Dodd (D-Conn.) for work on the derivatives reforms that will be considered on the Senate floor as part of a broader financial reform package.

In the letter, CMOC members said they are “especially supportive of the narrow exemption from mandatory clearing requirements for legitimate commercial end-users that use derivatives to manage risks associated with their businesses.” CMOC told Reid and McConnell that “financial entities, including hedge funds, investment banks and insurance companies, have begun to use commodity derivative contracts to hedge the risk of a declining dollar or rising interest rates. While these financial entities have a legitimate interest in hedging their risk, they are not producers, distributors or end-users of physical commodities.”

“Excessive speculation has caused dramatic increases in the price of crude oil, which harms end users, like America’s trucking industry,” says ATA Vice President Rich Moskowitz. “The Senate must resist Wall Street’s lobbying to broaden the end user exemption to entities that neither produce nor consume the physical commodities upon which the derivative contracts are based.”

CMOC opposes any expansion of exemptions in the derivatives title in such a way as to create new loopholes for financial market interests. The coalition also opposes:
• Expanding the end-user clearing exemption to financial entities or anyone other than legitimate commercial end-users utilizing derivatives markets to hedge commercial risk;
• Eliminating the category of “Major Swap Participant” and replacing it with a system of exemptions that would allow hedge funds and other financial players to exempt large portions of their derivatives portfolios;
• Lowering capital/margin requirements for financial players, including swap dealers, major swap participants and other financial entities;
• Eliminating “too-big-to-fail” prohibitions with respect to federal assistance for swap dealers and other financial participants; and
• New powers allowing the Treasury Secretary to exempt entire categories of swaps from regulation, which would undermine the authority of independent regulators like the Commodity Futures Trading Commission and the Securities and Exchange Commission.