U.S. regulators should decide by the middle of next year which derivatives clearinghouses should be designated as systemically important, Commodity Futures Trading Commission Chairman Gary Gensler said.
Gensler proposed the deadline today in a statement after the Financial Stability Oversight Council voted in Washington to seek comment on which clearinghouses should get the designation, which could subject them to Federal Reserve supervision. The council of regulators, created under the Dodd-Frank financial-regulation law, is determining which firms merit oversight because of their potential to threaten the broader economy.
“It is my recommendation that we as a council be in position to identify systemically important clearinghouses by the summer of next year,” Gensler said in the statement. “This will provide clarity to clearinghouses and market participants as to the standards that they will have to uphold when the mandatory clearing of standardized swaps becomes effective.”
The CFTC and the Securities and Exchange Commission are leading U.S. efforts to revamp regulation of the $583 trillion over-the-counter derivatives market after largely unregulated trading complicated efforts to resolve the 2008 credit crisis. The CFTC aims to complete most of its Dodd-Frank rulemakings by July 15, Gensler said.
Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Options and futures are the most common types of derivatives.